Debtor's Interest Unknown

Topic Unknown_Interest TopicsUnknownInterest




What if it is unknown what interest the D/M holds in the entity, if indeed the D/M holds any interest at all? This is an issue that has frequently befuddled the courts and has led to disparate results on similar facts.

With other assets, the judgment enforcement mechanisms allow a creditor to place a lien without having to ascertain whether the debtor has any interest, or exactly what that interest may be. Thus, for example, the filing of an abstract of judgment with the county recorder will pick up any real property that the debtor owns in the county, if at all, without the creditor having to make prior identification of it. If the debtor has not real property in the county, then the lien will simply have no effect: No harm, no foul. Allowing a creditor to place liens without knowing if they will attach to any property is completely consistent with the protective effect of liens.

Notably, this is also true with levies: A creditor may obtain a writ of levy directed to Chase Bank without knowing whether the creditor has any accounts there at all, but if the creditor does have accounts they are picked up by the levy.

Thus, the Harmonized Acts should be amended to provide that it is not necessary for a creditor to establish that the debtor has any interest in the entity, or the amount of the interest, prior to bringing the motion for charging order. If the debtor has no interest in the entity: No harm, no foul.

A final problem is that ยง 503(a) is couched in the discretionary "may enter a charging order" which frequently leads to confusion as to what circumstances may or may not exists that would cause the court to deny the charging order. This "may" should probably be replaced by the mandatory "shall", which would be consistent with other judgment enforcement remedies which are automatically issued by the clerk, i.e., levies and garnishments, etc.

Indeed, there is a question of whether the motion itself should be required. With other judgment enforcement remedies, the clerk simply issues the appropriate Writ, and then there is a hearing only if either the debtor or a third-party has a problem with the relief sought, i.e., the debtor asserts a claim of exemption, or a bank asserts a priority lien on funds of the debtor.


UNKNOWN INTEREST OPINIONS