Collecting Accounts Receivable Part IV: Post-Judgment Discovery
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This Blog is Part IV in a series of Blogs designed to provide business owners with a high-level overview of the legal process for collecting on past-due accounts receivables. Specifically, Part IV focuses on various methods of post-judgment discovery that a creditor can use for locating assets of the debtor to satisfy the judgment.
Similar to the discovery process that each party is entitled to during litigation, the judgment creditor can engage in post-judgment discovery once judgment has been obtained. This post-judgment discovery is referred to as discovery “in-aid-of execution” because it is meant to aid the creditor in executing the judgment against the debtor’s assets. See Fla. R. Civ. P. 1.560.
There are several types of post-judgment discovery allowed under the Florida Rules of Civil Procedure, and this Blog will discuss four: (1) the post-judgment fact information sheet; (2) interrogatories in-aid-of-execution; (3) requests for production of documents in-aid-of-execution; and (4) depositions in-aid-of-execution.
The Post-Judgment Fact Information Sheet: The creditor can request that the court order the debtor to complete a fact information sheet. Fla. R. Civ. P. 1.560(b). This request can be made in the creditor’s final judgment order, and the fact information sheet can be included with the final judgment when it is delivered to the debtor. The fact information sheet is a type of fill-in-the-blank financial statement where the debtor fills in the specific information requested. There are two different versions of this form depending upon whether the debtor is an individual or a company. The debtor has 45 days in which to complete the form under oath and return it to the creditor. Failure of the debtor to do so may result in a contempt of court charge issued by the court.
Interrogatories In-Aid-of-Execution: The Florida Statutes explain that a judgment creditor can obtain discovery through any method also available to the parties during litigation. Fla. R. Civ. P. 1.560(a). One such method is through the issuance of interrogatories to the debtor. Interrogatories are simply a list of well-crafted and strategic questions, specific to each debtor and the circumstances of each case, which the debtor must answer under oath within thirty days. Fla. R. Civ. P. 1.340(a). The Florida Rules of Civil Procedure grant the creditor a maximum of thirty interrogatories, including subparts, so each must be used wisely. However, if the creditor feels more interrogatories are necessary, he or she can petition the court for an increase. Well-crafted interrogatories can assist the creditor with obtaining information, or clarifying information, about the debtor that may not be easily obtained through documents and/or public records. For example: (1) whether the debtor stands to gain an inheritance in the near future; (2) whether the debtor is owed money, how much, and by whom; (3) possible future business ventures; and (4) evidence of fraudulent transfers.
Request For Production of Documents In-Aid-of-Execution: Another discovery method available to creditors, pursuant to Florida Rules of Procedure 1.350(a), is to request the production of documents. This can be a very profitable discovery tool, reaping immediate rewards. To illustrate, the creditor can request prior statements to any and all bank accounts, which can lead to the immediate garnishing of such funds for satisfying the judgment. The creditor can also request the past several years of tax returns, which will show the debtor’s past sources of revenue and can be a very rewarding bit of information. Furthermore, if the debtor is a company, or an individual possessing an ownership interest in a company, the creditor can request the financial statements of that business entity. Upon receiving the creditor’s request for production, the debtor must respond with the appropriate documents within thirty days.
Depositions-In-Aid-of-Execution: Just as depositions can be held during litigation, they can also be conducted during the post-judgment discovery process. Moreover, depositions can be a very beneficial tool for discovering assets and for confronting the debtor about the non-disclosure of assets if the creditor stumbled across any through independent research and investigation. A best practice is to first propound interrogatories and requests for the production of documents, and to allow some time to review thoroughly such information, prior to scheduling the depositions. By strategically conducting discovery in this order, creditors can use depositions to dig deep into the information already provided with the goal of uncovering additional assets or ways to gain access to assets once thought to be exempt. For example, if through a well-developed questioning strategy, the debtor inadvertently admits to what can be considered the fraudulent transfer of assets, then certain exemptions may be defeated.
This is just a brief overview of various discovery tools that a creditor has available and should begin utilizing immediately upon obtaining a judgment against the debtor. The longer such discovery methods are delayed, the harder it may be to find and execute on assets that the debtor is trying to hide. Judgment creditors can also use the power of the court to enforce the right to post-judgment discovery. If debtors are being unresponsive, failing to provide adequate answers or blatantly providing false information, creditors can petition the court for an order finding the debtors in contempt of court, which can lead to sanctions and/or incarceration.
Stay tuned for part V of this series, which will move beyond post-judgment discovery and focus on the first of several tools creditors can use to execute on a debtor’s assets in order to satisfy the outstanding judgment balance.