Due Process And The General Prohibition Against Pre-Judgment Asset Seizure
Creditors sometimes find themselves with an uncollected debt but know where the debtor has its assets. To expedite collection, it is not uncommon for clients or potential clients to ask attorneys whether accounts or assets can be seized at the outset of a case as a means to either force payment or secure collection of an unpaid obligation.
Generally speaking, the answer is “no.” The concept of due process permeates the legal system such that, unless and until a final judgment is obtained against a debtor for a sum certain and only after the procedures and safeguards afforded to parties in litigation are observed and otherwise complied with, every debtor is entitled to unrestricted access, use, and even alienability of its assets. This right is as old as America itself, which was founded in no small part on efforts to secure financial freedom.
There are, of course, significant exceptions that allow for pre-judgment seizure and taking of a debtor’s asserts. If, for instance, the debt is secured by collateral and the agreement covering the collateral gives the creditor an immediate right of possession, then a pre-judgment attachment is valid. Similarly, if the debtor is about to fraudulently take assets out of or flee the state, the court can entertain a request to freeze or seize assets.
Of a more amorphous nature is a restriction placed on assets because of general principles of fairness or equity. If a creditor can show that the circumstances of its situation are such that there is an irreparable harm being suffered or about to be suffered, there is no adequate remedy at law to redress that harm or potential harm, there is a substantial likelihood that the creditor will ultimately prevail on the merits of its claims at trial, and the requested form of pre-judgment relief will not be contrary to public policy, the court can fashion an equitable restriction or limitation on a debtor’s assets. This injunctive form of relief is most often applied when the debt owed includes repayment of something specific, like jewelry or a rare automobile.
But there are safeguards and limitations. Because these forms of pre-judgment relief largely circumvent the due process principles so heavily woven into the fabric of the law, a creditor is almost always required to post some form of security against the seizure or taking. In other words, a creditor has to post a bond with the court against the possibility that the pre-judgment relief was wrongfully sought out and this wrongful taking has damaged the debtor. This is not the same as failing to prevail on the merits. A party can seek and obtain pre-judgment relief but ultimately lose the action without having to hand over the posted security. A bond is only to protect against frivolous filings.
Whether you have any rights to pre-judgment relief is a matter that should be assessed by an attorney after presentation and careful consideration of the facts and grounds surrounding a particular case Knowing whether you have a right to garnish, attach, replevy, or enjoin is decided on a case by case basis and seeking to avail yourself of any pre-judgment remedy should only be undertaken by careful review of the facts and evidence with a qualified attorney.