Can Courts Force Debtors to Disclose Their Assets?
Posted: May 14, 2022
Your company is currently having trouble collecting payment from a number of deadbeat customers. You are considering referring them to a collection agency, assuming that said agency will be given court-ordered access to customer assets. But is such access guaranteed? No.
Collection agencies used to be far more aggressive back in the 1970s and 80s. But states began changing the rules to force collection agencies to back off – at least to some degree. Decades later, it is more difficult than ever for collection agencies to discover assets when debtors purposely try to hide them. However, it is not impossible.
Standard Debts vs. Judgments
Answering the asset question requires discussing the difference between standard debts and judgments. A standard debt would be something like a utility bill or your monthly cell phone charges. As long as those debts do not end up in civil court, they remain standard debts.
A judgment is a court proceeding that establishes the legal legitimacy of a debt. Let us go back to the utility bill. Imagine you avoided paying your bill for six months. The utility company takes you to court. You go through civil litigation only to find that the court rules against you. Now a judgment is entered. That judgment recognizes your debt to the utility company, a debt that includes whatever you owe for past service plus interest and the utility company's court costs.
Disclosing Your Assets
The asset disclosure question is answered differently depending on the debt in question. Even if the utility company turned your account over to a collection agency, you would not be compelled to disclose your assets in the absence of a court judgment. In other words, a collection agency cannot ask you about your assets, let alone try to force you to reveal them.
Judgments are different. If a judgment were entered against you, the court would expect you to comply with any and all requests to disclose your assets. And you could bank on the fact that the creditor or its attorney will ask you. Chances are pretty good that it will not take long, either. Within a few hours or days of the court case, you will hear from the creditor.
What happens if you refuse to disclose your assets? That depends on state law. Some states do not allow creditors to pursue asset disclosure above and beyond simply asking. Other states give creditors a tool known as the Order of Examination.
More About the Order
Utah-based Judgment Collectors handles California cases on behalf of their clients. They say California law provides for the Order of Examination. So let's say your dispute with the utility company occurs in the Golden State. If you avoided paying for an extended amount of time after a judgment was entered against you, Judgment Collectors could petition the court for the Order of Examination.
The court siding with Judgment Collectors would result in a subpoena being issued. That subpoena would compel you to appear in court and testify about your assets. The less cooperative you were in court, the more aggressive you could expect questioning to be. Fail to show up in court and an arrest warrant could be issued against you.
The forced asset disclosure issue boils down to two things: the type of debt being collected and any applicable state laws. Where creditors can force disclosure with an Order of Examination, they generally will. Where they cannot, debtors have a slight advantage in playing the waiting game. But get a skilled debt collection agency involved and the tide turns back in favor of the creditor.
With extensive research and study, Simon passionately creates blogs on divergent topics. His writings are unique and utterly grasping owing to his dedication in researching for distinctive topics.