Judgment Creditor

A Judgment Creditor is a party/entity that has obtained a court judgment in their favor to collect a debt. If the judgment debtor does not voluntarily pay the amount owed, the judgment creditor can take legal steps to enforce the judgment.

Courts may order the judgment debtor to make payments in installments, but the option for periodic payment arrangements is generally available. If the judgment debtor files for bankruptcy, the judgment creditor may be classified as an unsecured creditor. The bankruptcy code determines the order of payment in bankruptcy proceedings, and secured creditors usually have priority over unsecured creditors.

• A judgment creditor refers to the petitioner or complainant in whose favor the Court passes the verdict, ordering the defendant to pay off the owed money to the former party.
• They can enforce the various collection remedies, including wage garnishment, property lien, property levies, charging orders, or Schedule for installments. 
• Although they have limited rights on the debtor's personal property, excluding the assets stated as 'exempt.'
• They have the legal right to receive the payment before the unsecured creditors in case of the debtor's bankruptcy. However, they would be compensated only after the secured creditors.

A judgment creditor is a person or entity liable to receive the owed amount from the respective debtor under the judgment lien passed by the court. The winning appellant has the right to collect the owed money and enforce the court's judgment through various means, including:

• Issuing charging orders - The creditor can claim the income or profit distribution issued to the debtor for having ownership interest in a Limited Liability Company (LLC).
• Property lien - Some states allow the judgment creditor to claim the right to the debtor's personal property.
• Wage attachment - These creditors are entitled to receive 25% or more of the debtor's net wages as the repayment of the owed amount, but it may vary by jurisdiction. 
• Property levies - The writ of execution makes the sheriff or marshal take charge of the debtor's property and publicly auction it to use the proceeds for reimbursing the creditors.
• Schedule for installments - Being the most common verdict, the Court may order the judgment debtor to repay the creditor in partial payments or installments.

However, the Court limits the creditors from claiming all of the debtor's property by stating certain assets as exempt.

As per Order XXI Rule 46 (A) to (I), CPC states that in execution proceedings against a judgment debtor, when a third party holds the judgment debtor's property, i.e., garnishee, essentially becoming the debtor of the judgment debtor. Hence, in such a case, the garnishee order issued by the Court instructs the garnishee not to pay money to the judgment debtor because of the latter's indebtedness to the garnisher, I.e., the judgment creditor.

Let us have a look at their roles in the real world and hypothetical scenarios.

Example #1

Suppose ABC Pharmaceuticals Ltd. Purchased gelatin shells from XYZ Pharmatech in May 2021. However, the debtor, i.e., ABC Pharmaceuticals Ltd., Failed to pay the due bills of $9,000 to the creditor XYZ Pharmatech even after two years of purchase. Therefore, the latter filed a lawsuit against the former for debt recovery. The Court ordered ABC Pharmaceuticals Ltd. to pay the owed money in 6 equal monthly installments of $1500 each to the judgment creditor XYZ Pharmatech.

Example #2

Former National Football League (NFL) quarterback Michael Vick was facing financial trouble in 2020. He addressed a judgment tied to a quasi-loan worth nearly $2 million with a group of business executives. In a settlement plan suggested at Montgomery County Circuit Court, Vick agreed to pay at least $100,000 by March 1, 2021, pleading to reduce the debt to about $1.3 million after this payment. However, the judgment creditors demanded $400,000 by claiming Vick's three years of earnings as a television football analyst, as decided in the 2018 agreement. 

During the legal proceedings in Montgomery County Circuit Court, Vick's attorney revealed contentious deal terms, including $5,000 daily late fees. The dispute originated from a 2018 deal with NV Partners involving a $400,000 lump sum payment for future earnings. Vick's legal team challenged the judgment, but a recent settlement outlines payments and potential resolution of outstanding amounts over the next four months.

Since these entities are in a state of not recovering the full payment, unlike the secured creditors, they often encounter various obstacles. Some of these challenges include the following:

• Limited access to debtor assets, priority disputes with other creditors, complexities in bankruptcy proceedings, and tactics like asset concealment and fraudulent transfers by debtors.
• Enforcing charging orders is a time-consuming and costly affair for many plaintiffs.
• Identifying tangible assets is crucial for effective enforcement, but challenges arise when debtors primarily possess intangible assets.
• The winning creditors must approach an experienced legal advisor or attorney to ensure successful debt collection.

The judgment and secured creditors have a fine line of distinction, as discussed below:

This article has been a guide to what is a Judgment Creditor. We explain the concept along with its comparison with secured creditor, examples, & disadvantages. You may also find some useful articles here -

• Intercreditor Agreement
• Debtor vs Creditor
• Credit Scoring Models