Garnishing IRAs

What if your judgment debtor has a non-ERISA IRA retirement account, can that account be levied to satisfy your judgment?

One of many judgment-related articles: I am not a lawyer, and this article is my opinion based on my experience, please consult with a lawyer if you need legal advice.

If you levy a non-ERISA IRA, you will probably get a call from the brokerage’s levy department, saying they have frozen the debtor’s account, and are investigating whether that IRA account is exempted or not from garnishments.

In California, CCP 704.115 indicates that an IRA is exempt only to the extent necessary to provide for the support of the judgment debtor when they retire. If the debtor is currently not retired, it may seem the IRA account can be levied.

However, it does not matter whether the debtor is retired or not. The question is, how much money the debtor will need to live on in the future, whether currently retired or still working. So, it is very likely that some of their IRA money will be exempt.

The factors to consider include the debtor’s current age, their likelihood of further contributions to their IRA in years to come before retirement, the debtor’s other resources available for retirement, their earning potential, and the debtor and their dependents’ likely needs at retirement, based on factors such as health.

The amount exempted under California’s CCP 704.115 (e) varies a lot for different cases. A rule of thumb is that if the IRA funds are less than $250K, they are likely to be exempt, but if more than $250K then there is a chance of getting some of them. This rule often has exceptions.

Generally, if the IRA funds are less than $150K, you are probably wasting your time. I am not aware of any case where a creditor in recent years has successfully levied an IRA that was less than $150K.

However, contributions to IRAs are sometimes fraudulent transfers, especially if there was a large sum recently added. Fraud is usually difficult to prove, and much tougher to prove if the debtor has been making small payments all along.

Also, the taxes and penalties that the debtor will be subject to, are mandatory exemption amounts. It is sometimes good news when the debtor has borrowed against their IRA, because that amount will no longer have the protection of an IRA. Of course, you would usually have to subpoena such records.

The Priority Of Tax Liens

What if you have a lien or abstract of judgment recorded against your debtor’s property. What if you later receive a letter from the county treasurer, advising you of an upcoming “Notice of Sale of Tax-Defaulted Property”?

One of many judgment articles: I am not a lawyer, and this article is my opinion based on my experience, please consult with a lawyer if you need legal advice.

Will the winning auction bidder of the property have to pay off your lien, to enable them to purchase the judgment debtor’s property? And if not, what can you do to protect your interests?

Would the above situation be similar to a real estate sale of a liened property, where it would be necessary to file an action against the high bidder? Presumably, a prospective bidder will research the public records prior to bidding. A tax lien takes priority over all other liens. If you buy a property at a tax lien auction sale, you sometimes get it free and clear.

At tax auctions, other liens including mortgages, usually follow the property. To make sure, you could check with your county treasurer. If there is a lot of money at stake, you might want to order a litigation sale guarantee to double-check the title priority; to see which liens are senior to yours, including deeds of trust and taxation liens.

Of course, you can research this yourself at the recorder’s office. However, you might miss some improvement bonds or involuntary tax liens. Involuntary taxation liens follow the judgment debtor’s social security number, not the address of any of their real property(s). Also, you might not find specific liens that are for taxes, but which were filed in another county. So, it may be worth it to pay for a litigation sale guarantee report.

To protect your lien, the only option is to bid on the property and win, and pay off all senior and tax liens. If someone else wins the auction, the sale proceeds would be paid out in this priority:

1) To pay for the costs of the sale.

2) To pay of the past-due property tax liens.

3) To pay of all judgment liens prior to yours.

4) To pay off your judgment lien.

5) To pay off judgment liens after yours.

6) Any extra funds would go to the judgment debtor, who is the former owner of the property.

Judgments And Credit Reports

One way to increase the chances that your judgment will be paid, is when your judgment is placed on the debtor’s credit report(s).

One of many judgment articles: I am not a lawyer, and this article is my opinion based on my experience, please consult with a lawyer if you need legal advice.

In the past, the best way to increase the odds that a judgment would be included, was to send copies of the judgment to the major credit bureaus. Now, the credit bureaus no longer take action on judgments sent to them by individuals. Now, they only get and accept judgment information coming from data research companies.

Usually, judgments are not automatically put on credit reports, unless the creditor takes a certain action; and even then, it is not guaranteed that a judgment will appear on their debtor’s credit report(s). The way a creditor can increase the odds that their judgment will appear on credit reports, is to record a judgment lien or an abstract of judgment, at a county recorder’s office.

Also, record new liens in any county where the recording may impact your debtor. Examples would be where they live, where their parents live, to catch probate payments; where they own business interests or property, etc.

Most data research companies looking for judgments, search for liens at the recorder’s office. (A few look for judgments at courts.) This means that if there is no lien recorded, the credit bureaus will usually not see the judgment. It also means the older a judgment is, the less likely it will show up on a credit report.

Usually, judgments only remain on credit reports for 7 years. The only thing a creditor can do to increase the odds that their judgment will remain on the debtor’s credit report past 7 years, is to renew their judgment and record an updated property lien which references the previous lien number; so it will not lose its priority.

So, every 7 years, get an updated lien (first renew your judgment every 7 years, or long before it expires) that lists the accrued interest, and any court-approved costs; and record it at the county recorder’s office.

What if your judgment debtor changed their name or now uses an AKA, or their last name because of marriage? That means you will have to take some action with the court to reflect that new name, then record a new updated new lien with that AKA.

If your debtor moved to a location in the same state, you should record a lien in the county where they moved. If your debtor changed names or is now using an AKA, you should take a court action so that AKA will be reflected on the judgment, and then record an amended judgment lien.