Execution and Levy
Execution can refer to any method of enforcing a money judgment. However, in debt collection, execution usually refers to the specific method of getting a writ of execution from the court clerk to give to the sheriff so that he can seize the property of the debtor, then sell the property so that the net proceeds can be given to the creditor in satisfaction of its debt. Although the modern law of execution derives from the common law writ of fieri facias, often shortened to fi fa, today it is largely determined by state law.
Only a creditor with an unpaid, unsecured debt needs to resort to execution. A secured creditor can, in most cases that don't include mortgages, take or foreclose on the collateral without going to court or using the sheriff.
The 1st step in execution is obtaining a money judgment from a court. Then the judgment creditor would obtain either a writ of execution or a certified copy of the judgment from the court clerk, then deliver it to the sheriff. However, there is generally a 10 – 30 day waiting period between the entry of the judgment and the issuance of the writ so that the debtor has a chance to pay the debt.
If a debt resulted because of missed payments that are required of the debtor, such as those for child support, then execution and levy can only be for the missed payments.
The writ of execution is an order for the sheriff to seize the debtor's nonexempt property and take into legal custody (in custodia legis)— what is otherwise known as levy. The writ is only valid for a limited time determined by state law, usually 60 to 180 days. The date that the writ expires is the return date — afterward, the judgment creditor would need to get another writ.
A money judgment has only a finite lifetime, which typically ranges from 5 to 10 years, depending on state law. Afterwards, the judgment become dormant and the judgment creditor can no longer use the judgment to get a writ of execution which is necessary for execution and levy.
A dormant judgment can become legally effective again through revival or renewal. The procedure of revival is derived from the common law writ of scire facia. States have different procedures for revival, including limits on the duration of the renewed period and on how often a judgment can be revived. However, a revived judgment may lose its priority against competing claims.
A judgment creditor can obtain a writ of execution as many times as it wants as long as the judgment is not dormant and the creditor does not have any outstanding writs.
After the judgment creditor receives the writ of execution from the court clerk, he delivers it to the sheriff. In some states, the delivery of the writ to the sheriff creates an execution lien against all the debtor's nonexempt property. However, it is a contingent, inchoate lien until the sheriff actually seizes the property and brings it within legal custody. Then the property is identified and the execution lien becomes choate or perfected, so the property is protected against being sold by the debtor or from levy by another creditor.
Exempt Property That Cannot Be Levied by Unsecured Creditors
All states have laws that exempt certain property from being levied by unsecured creditors. Exemption laws do not apply to the collateral of a secured creditor. These are the same exemptions used in Chapter 7 bankruptcy, although 15 states allow the use of federal exemptions for bankruptcy. Although the purpose of exemption laws is to provide a minimum means of survival for an individual or a family, the relationship between what is exempt and what is necessary for survival is a very tenuous one, indeed, especially considering the fact that although everyone has the same basic needs for survival, exemption laws vary greatly among the states. Part of this variation and the meager exemptions allowed by many states stems from the fact that many of the laws were enacted in the 1800's and have not been updated since. State exemptions are not adjusted for inflation.
However, exempt property does make it more difficult for the sheriff to levy property, since the debtor could be entitled to damages if exempt property is levied. So the creditor may have to post a bond or indemnify the sheriff for the possibility of taking exempt property, or the creditor may even get a court order to declare that certain property is nonexempt, since sometimes it is not clear.
Federal Tax Liens
The Internal Revenue Code limits the amount of property that is exempt from levy for unpaid taxes. IRC §6334 exempts certain property, adjusted for inflation, from levy by the IRS. Most of this property allows a household to maintain a minimum living, but the exemption is subject to maximum values, which depend on the type of property. The exemption for personal property is about $10,000 and the exemption for property used in a trade or business or profession is about half that. Personal property includes clothing, school books, fuel, provisions, furniture, and personal effects.
Levies on income are also limited, depending on the number of exemptions claimed: see IRS Publication 1494 for more details. Additionally, income received from unemployment benefits, public assistance payments, or workmen's compensation are fully exempt. If the taxpayer must pay child support, then any other income is exempt so as to allow the taxpayer to continue child-support payments. The amount of working income that is less than the taxpayer's standard deduction + all personal exemptions to which he is entitled to is also generally exempt.
Levy
Levy, also known as attachment, is the crucial step in the execution process that identifies the property and fixes the lien on the property for the benefit of the creditor. Levy is the seizure of the debtor's nonexempt property and placing it in custodia legis, within the custody of the law. Until then, it is not even known if the debtor has nonexempt property to levy, and what nonexempt property the debtor does have, may be transferred to 3rd parties.
Since sending the sheriff to the debtor's residence to find property costs the creditor some money, the creditor may do some investigating to determine if the debtor has any nonexempt assets, and if he does, the creditor will inform the sheriff.
In most states, levy sets the priority for the judgment lien, since then the lien is perfected against 3rd parties; in a few states, the priority of the lien against competing claims is established when the writ is delivered to the sheriff.
Levy, of course, must be done before the return date of the writ; afterwards, the sheriff has no power to levy from the writ. When the sheriff returns, she must note on the writ of execution that the levy was either successful or that it was a nulla bona return — no nonexempt property was found that could be levied. If the writ expires or the return is nulla bona, then the creditor must obtain another writ of execution to repeat the process.
Sheriff's Sale
The next step in execution is the sale of the property to benefit the creditor, which must be done before the judgment becomes dormant, though this is usually not a problem because most states have greatly extended the lifetime for judgments beyond the old common law period of 1 year. The sheriff must conduct the sale according to state law.
A drawback to both the debtor and the creditor is that sheriff's sales are usually poorly attended resulting in little competitive bidding. Hence, the debtor's property is often sold at far less than the fair market value of the property, especially since the buyers must accept the property as it is — there are no warranties. Some states have enacted appraisal statutes requiring the property to be appraised, then either the property must be sold for a minimum percentage of the appraisal or the creditor must accept the minimum as a credit for the debt.
Some states also have redemption statutes where debtors have a prescribed duration — the redemption period — to buy back their property at the sale price. In some states, if the debtor does not redeem the property, then creditors with junior liens on the property have a right to redeem it.
A major disadvantage to redemption rights is that the property may sell for less because the buyer does not get a clear title to the property until after the redemption period.
Distribution of the Sale Proceeds
After the sale, the money collected is 1st used to pay the expenses of the sale. In some states, if there are any liens on the property that are senior to the judgment creditor, then they must be paid before the creditor; in other states, the buyers must accept the property with the senior liens. Junior liens are always cut off; junior creditors do not receive anything from the distribution nor do their liens survive the sale.
Then the judgment creditor gets paid up to the amount of the judgment. The rest of the money, if any, goes to the debtor.