Collecting On A Judgment When The Judgment Debtor Says He's Broke But Won't File Bankruptcy

Getting a judgment on a promissory note, retail installment contract, lease, credit agreement or other contract is often the easier part of getting made whole.  Whatever the piece of paper signed by a judge says, the creditor still has to collect.  When a judgment debtor claims to be broke and doesn’t pay, but refuses to file Bankruptcy, the assumption must be that the debtor has some assets somewhere, however obscured.  This e-mail blast addresses some ideas for collecting on non-consumer debts.  Collecting on consumer debts is a completely different animal, subject to much regulatory scrutiny, and will be the subject of future articles.

Any lawyer or client who has obtained a judgment knows that when the judgment debtor is a person or business (rather than his, her or its insurance company), the first key to getting payment is to record the judgment with the register of deeds for the county where the debtor resides.  This creates a judgment lien.  Having the lien opens up a variety of execution remedies that are otherwise unavailable.  (In fact, an often overlooked statute requires that in order to execute against a judgment debtor’s personal property, the judgment, or “a similar abstract or memorandum [must be] registered within sixty (60) days from rendition of the judgment or decree, in the county where the debtor resides, if the debtor lives in this state, or, if not, then in the county in which the property is located.”  Tenn. Code Ann. § 25-5-103.) 

Collecting When A Judgment Debtor Has Real Estate Assets.

In some cases, a judgment debtor may not have much income, but still has significant real estate assets, and does not want a Chapter 7 Trustee snooping around, much less liquidating the assets.  Further, judgment liens are foreclosed via a sheriff’s sale, which unlike a regular non-judicial foreclosure, is a time-consuming and expensive process subject to conflicting rules.  (The details of and difficulties encountered in a sheriff’s sale of real or personal property is also a subject for a future e-mail blast.)  If, after efforts at collecting on the judgment and judgment lien have failed—for example, when past due real estate taxes preclude the ability to convey title via a credit bid at a sheriff’s sale and—the equitable remedy of a receivership is often available.  This remedy may also be available as a contractual right if the judgment is based on an unpaid commercial loan, as many loan documents include (or should include) receivership as a contractual remedy. 

In one recent case, a colleague of ours obtained a judgment in excess of $1,200,000.00 for personal injuries his client sustained in a car accident.  We were retained to collect that judgment, where the judgment debtor failed to make any payments to satisfy the judgment and pled poverty.  But the judgment debtor also owned numerous rental properties, some of which were duplexes and multiple dwellings, most of which should have thrown off a profit, and all of which were poorly managed.  Nearly all of them had significant equity.  Ultimately, we asked the Court to appoint a receiver, and after the receiver stabilized the properties’ cash flow, we received Court permission to liquidate the properties.  This process resulted in the recovery of more than $300,000.00 to be applied against the judgment.  Needless to say, the client—who was bedridden for months after the car wreck—was elated to get something, when it once looked like there was nothing to get from the judgment debtor.  The lesson, in these non-consumer situations, is to not be afraid to get creative when collecting on a judgment debtor’s real estate assets.

Collecting When A Judgment Debtor Changes Title To Or Overfunds Retirement Accounts.

It should come as no surprise that many debtors, sometimes when times are good, but often when hard times are on the horizon, try to conceal assets or otherwise protect them from the inevitable calls of creditors.  In one of our cases, we obtained a judgment against a guarantor of a commercial construction loan, who claimed poverty other than what was in his retirement accounts.  The judgment debtor did not put up much of a fight in litigation because he was confident that the assets in his retirement accounts were protected from the claims of creditors where (a) non-tax advantaged accounts were owned as tenants by the entireties, and (b) one was an overfunded Individual Retirement Account (“IRA”).  He was wrong.  

Without going into too much detail about the nuances of the estate of tenants by the entireties, an estate by the entireties is one held (a) by a husband and wife, and (b) by virtue of a title acquired by them jointly after their marriage; in Tennessee, real and personal property can be owned by spouses as tenants by the entireties.  The general rule is that a judgment creditor cannot garnish a judgment debtor’s deposit account when it is legitimately owned by the judgment debtor and his non-debtor spouse as tenants by the entireties.  In our case, we issued a subpoena to the financial institution holding the retirement accounts.  A long, detailed and tedious scrutiny of the voluminous response showed that the retirement accounts were all started in the husband’s name, individually, and funded using his money.  Since the existence of a tenancy by the entireties is established by a preponderance of the evidence, we argued that title to each of the accounts—and the initial money to obtain the assets contained therein—cannot have been acquired jointly by the judgment debtor and his spouse, and therefore could not be considered as owned by the entireties. 

As for the overfunded IRA, the judgment debtor contributed several hundred thousand dollars to his IRA during a time frame roughly commensurate to or immediately before the fundamental default.  To see why this creates an attachable asset, we start with the rule that the attachability of a judgment debtor’s tax advantaged IRA, as set forth in Section 408 of the Internal Revenue Code, is a matter of state law.  Tennessee Code Annotated §§ 26-2-105(b) and 26-2-111 exempt tax advantaged IRA’s from the claims of creditors, generally.  However, “[i]f … the debtor may, without a penalty prescribed by law, receive the assets as a lump-sum payment, in periodic payments over a period of 60 months or less, or before 58-years of age, the pension or retirement plan is not exempt.”  Masey v. Casals, 2011 Tenn. App. LEXIS 223, *20-*21, *23 (Tenn. Ct. App. May 3, 2011).  Although the judgment debtor contributed hundreds of thousands of dollars to the IRA, the contribution limit for that tax year was $5,000.00, and excess contributions that are withdrawn on or before the tax return filing deadline are not subject to a 6% tax penalty.  26 U.S.C. § 408.  That is, the judgment debtor could withdraw the excess funds without paying a penalty—regular income tax doesn’t count as a penalty—and those excess funds were, therefore, subject to execution by creditors.  Our client, a lender, wound up getting paid in full, including all collection costs and attorneys’ fees.

The lesson from this case is that appearances can be deceiving, and that there is no substitute for the always time-consuming and sometimes mind-numbing task of analyzing and dissecting a judgment debtor’s financial records.  Other attorneys assured us that there was no way to execute as against retirement accounts held as tenants by the entireties and that there was no way to execute as against an IRA.  Like the judgment debtor, they were wrong, but we could only demonstrate their erroneous beliefs through a long and detailed study of the records we obtained through the subpoena.


If you have a commercial or other non-consumer judgment or debt that you want to collect, or if you have a situation where you anticipate collection will be difficult once you obtain an inevitable judgment, give us a call or email us at, and  We are happy to look at your situation and get creative with collection remedies, or figure out a way to test whether the debtor is really as judgment-proof as he, she or it claims.  For more information about the legal services we offer for creditors, check out our website at

Next week, we will discuss non-recourse carve-out guaranties, why they sometimes work, but also why we often do not like them.



Michael Schwegler