I Won a Judgment Against a Business. How Do I Collect in Texas?

Day one: the judgment is final, now what?

A Texas money judgment earns post-judgment interest from the day it is signed, but nothing is collected until the creditor acts. Two dates set the schedule. Texas Rule of Civil Procedure 627 lets the clerk issue a writ of execution 30 days after a final judgment is signed, or 30 days after a timely motion for new trial is overruled, unless the debtor has filed a supersedeas bond to suspend enforcement during an appeal. Before the writ, the creditor can already record an abstract and begin discovery. The sequence below is the usual one, and a creditor who follows it is rarely surprised.

Step one: record an abstract of judgment

An abstract of judgment is a short certified summary of the judgment that the clerk of the court, or the creditor's attorney, prepares under Property Code section 52.002. When it is recorded and indexed in a county's real property records, section 52.001 makes it a lien on all of the debtor's nonexempt real property in that county, including property acquired later. The lien lasts ten years from recording under section 52.006, unless the judgment goes dormant first. Recording in every county where the debtor owns or may acquire land is inexpensive and should be the first act after the judgment is signed; a business that later sells or refinances property will have to pay the lien to clear title.

Step two: find the assets

Rule 621a allows the judgment creditor, at any time after judgment and as long as the judgment is not superseded or dormant, to use every pre-trial discovery tool to locate assets: written interrogatories, requests for production of bank statements, tax returns, accounts receivable ledgers and equipment lists, and depositions of the owners and bookkeeper. A business debtor that ignores post-judgment discovery can be compelled and sanctioned like any party. The answers tell the creditor which of the following tools fits.

Step three: execution on nonexempt property

Rule 621 provides that judgments are enforced by execution or other appropriate process. A writ of execution directs the sheriff or constable to levy on the debtor's nonexempt property, sell it at a public sale and apply the proceeds to the judgment. Equipment, inventory, vehicles and real estate are all reachable. The officer must be told where the property is; a writ delivered with no instructions is usually returned unsatisfied. Execution is also what keeps the judgment alive, as explained below.

Step four: garnishment of accounts and receivables

Garnishment reaches money the debtor is owed by someone else, most often a bank. Civil Practice and Remedies Code section 63.001 makes a writ of garnishment available to a plaintiff who has a valid, subsisting judgment and files an affidavit that, within its knowledge, the debtor does not possess property in Texas subject to execution sufficient to satisfy the judgment. The writ is served on the garnishee, which must hold what it owes the debtor and answer. A bank garnishment freezes the account on service, which is why it is the tool creditors reach for once discovery has identified where the business banks. Customers who owe the debtor money can be garnished the same way. Section 63.004 exempts current wages for personal service, which protects individual employees but has nothing to do with a company's receivables.

Step five: turnover orders and receivers

Some property cannot be levied on easily: a company's interest in a contract, a claim against a third party, intellectual property, stock in another company, or cash the debtor keeps moving. Civil Practice and Remedies Code section 31.002 lets the court order the debtor to turn over nonexempt property and the records that go with it to an officer for execution, apply the property to the judgment, or appoint a receiver to take possession of nonexempt property, sell it and pay the creditor. The order can be enforced by contempt, and section 31.002(e) entitles the creditor to recover its reasonable costs, including attorney's fees. The statute does not reach exempt property, and the order need not identify the specific property to be turned over.

When the business has nothing

Several routes remain when the entity is a shell:

• Charging order. If the judgment is against an individual who owns an LLC, Business Organizations Code section 101.112 lets the court charge the membership interest, giving the creditor the distributions the member would have received. It is the exclusive remedy against the interest itself and does not reach the company's assets.
• Piercing the veil. Where the owners used the company as a sham to perpetrate a fraud, Texas law allows the judgment to be enforced against them. The standard is demanding and is covered in when a Texas court will hold an owner personally liable.
• Fraudulent transfers. Assets moved out of the company to insiders or affiliates for less than fair value, or with intent to hinder creditors, can be recovered from the transferee under the Texas Uniform Fraudulent Transfer Act.
• Successor entities. A new company operating the same business from the same address with the same people invites a claim that it is a continuation of the debtor.

Post-judgment discovery is what uncovers these facts, which is why skipping it to go straight to a writ is a mistake.

Example

Suppose a Dallas equipment lessor obtains a judgment against a construction company for unpaid lease payments. The company does not appeal and does not pay. On day 31 the lessor records abstracts in Dallas and Collin Counties, where the company's owner has said it holds a yard and a small office building, and serves interrogatories and a request for bank statements. The responses show an operating account at a Dallas bank, three trucks titled to the company, and a receivable owed by a general contractor on a current project. The lessor obtains a writ of garnishment on the bank, which freezes the account, and a second writ on the general contractor, which must pay the receivable into court rather than to the debtor. A writ of execution goes to the constable with the location of the trucks. The judgment is satisfied from the frozen account and the receivable before the trucks are sold, and the lessor recovers its post-judgment fees under the turnover statute for the work needed to reach the receivable.

Keeping the judgment alive

Civil Practice and Remedies Code section 34.001 makes a judgment dormant if no writ of execution is issued within ten years after it is rendered, or if a second writ is not issued within ten years after the first. Execution cannot issue on a dormant judgment unless it is revived, and section 31.006 allows revival by scire facias or an action of debt only within two years after dormancy. The judgment lien from the abstract also dies with dormancy under section 52.006. A creditor with a judgment it cannot yet collect should have a writ issued before each ten-year mark and re-record the abstract before each lien expires. Post-judgment interest continues to accrue at the rate set under the Finance Code, so a patient creditor's judgment grows.

Appeals and bankruptcy

A debtor that posts a supersedeas bond or other security suspends enforcement while it appeals, and Property Code section 52.0011 lets the court prevent the abstract from attaching as a lien in that situation. A bankruptcy filing stops every collection step automatically, and a creditor that garnishes or levies after the filing must undo it. Both are reasons to move early: a creditor that recorded its abstract and garnished the account before the filing is a secured creditor to that extent, while one that waited is unsecured. The costs and timing of an appeal are covered in appealing a business case in Texas.

What collection costs and when to involve counsel

Each writ carries a filing fee and an officer's fee; those are fixed by rule and are recoverable as costs. The real expense is the attorney time spent on discovery, turnover motions and litigation with transferees, which section 31.002(e) shifts to the debtor when the turnover statute is used. A collection plan written in the week after judgment, listing the counties for abstracts, the discovery to serve and the writs to request, usually recovers more at lower cost than a writ requested on impulse. Tina Wysk represents Dallas businesses in obtaining and enforcing commercial judgments, including post-judgment discovery, garnishment, turnover and fraudulent transfer claims, in state and federal court.