Pennsylvania and New Jersey Judgment Enforcement: Practical Considerations for Creditors

Obtaining a judgment is always the goal of a plaintiff in litigation, but it is only half the battle. Collecting on your judgment can be slower, more expensive, and more restrictive than many creditors expect. A court judgment confirms that the defendant owes money, but it does not automatically put cash in the creditor’s hands or require that the defendant immediately do so.

How burdensome post-judgment collection is depends on what assets the debtor has, where those assets are located, how they are titled, and what the law allows a creditor to access. Those limits become especially important when your judgment is against an individual whose primary asset is their equitable interests in one or more limited liability companies.

Methods of Collecting on a Judgment

After a judgment is entered, the creditor usually has several possible collection tools. The most common are bank levies, wage garnishments, liens, and post-judgment discovery.

Bank Levy

Creditors can freeze and seize funds held in the debtor’s bank accounts. If the debtor keeps meaningful cash on deposit and the creditor knows (or can find out) the financial institution where debtor keeps deposits, this can be a cost-effective method of collection. However, depending on the debtor, how accounts are titled, and their cash flow, it isn’t uncommon to not yield results.

Wage Garnishment

This is an order that directs an employer to withhold a portion of the debtor’s wages and pay that amount toward the judgment. This is useful if the debtor has regular employment, but is limited by federal and state law. For example:

In Pennsylvania, a creditor can only garnish wages for certain types of debt, such as unpaid residential rent, child support/alimony, taxes, student loans, and criminal restitution.

In New Jersey, a creditor can garnish wages for ordinary debt, such as defaulted loans, but must work through additional procedural requirements with the courts to obtain a court order permitting wage execution.

In both of the above cases, there are limitations. In both Pennsylvania and New Jersey, the law limits how much can be collected in order to ensure that the debtor continues to receive some funds for their living expenses. The amount of the cap varies depending on several factors, such as their income and the type of debt.

The success and viability of wage garnishment greatly varies by jurisdiction and also depends on the debtor’s employment details. If the debtor is self-employed, paid irregularly, or works through an entity rather than as a traditional employee, garnishment may be ineffective.

Judgment Lien

Judgments can attach to the debtor’s home or other real property. Depending on if the property is heavily mortgaged or protected by a state’s homestead exemption or simply lacks equity, some jurisdictions allow a creditor to foreclose. However, if the creditor does not have an interest in taking title to the property if it does not sell at a sheriff sale, there is some risk in foreclosing. If the creditor waits, the debtor may need to pay the lien if the debtor refinances or sells their home in the future. Therefore, while liens can create leverage and the potential for payment in the future, they are not necessarily an immediate solution.

Charging Orders

Charging orders serve as liens on a debtor’s economic interest in an LLC or partnership. In Pennsylvania and New Jersey, this is the exclusive remedy a creditor can take against a debtor’s business.

Limitations on Charging Orders

When a judgment is entered against a debtor with interests in LLCs or partnerships, the charging order does not grant any management rights to the creditor. The creditor generally cannot simply take over the LLC or seize company assets as if they belonged to the debtor personally. That is because the LLC is a separate legal entity, and its assets belong to the LLC, not to the member.

Instead, the creditor is granted the right to receive distributions that would otherwise be paid to the debtor-member. It does not give the creditor authority to compel distributions. In other words, the creditor may stand in line for money only if and when the LLC decides to distribute it.

That limitation is significant. If the LLC makes no distributions, the charging order may produce nothing. In a closely held company, the other members—or even the debtor if the debtor has management influence—may decide to retain earnings, reinvest cash, or structure compensation in ways that reduce or eliminate distributions. As a result, a charging order’s effectiveness can vary greatly depending on the target LLC or partnership.

Importantly, a charging order does not automatically reach salary, guaranteed payments, loans from the LLC, or other forms of economic value.

How do you decide the best approach?

Often, post-judgment discovery is used to locate assets. That may include written interrogatories, document requests, depositions in aide of execution, subpoenas to banks or third parties, and public records searches. While discovery is helpful in obtaining accurate information, it also can increases the costs of collection, especially if the debtor is uncooperative, that may or may not be recoverable as part of your judgment.

Time Limits on Judgments

A judgment does not last forever, and collection rights are governed by deadlines that vary by state. In many jurisdictions, a judgment is enforceable for a fixed number of years and can sometimes be renewed before it expires. If the creditor misses the renewal window, it could impact the validity or the priority of the judgment.

In New Jersey, judgments are valid for 20 years from the date of entry. Judgments can be renewed for an additional 20-year period by filing a motion with the Court prior to the expiration of the first 20-year period. Otherwise, the judgment is unenforceable.

Judgments in Pennsylvania are a little more complex. Judgments attach to real estate as a lien for a period of 5 years from the date of its entry, unless it is revived. Failure to revive the lien within the five-year period does not nullify the judgment, but it does lose its priority against subsequent liens until revived.

For purposes of executing against personal property or levying bank accounts, a judgment in Pennsylvania is valid for 20 years from the date of its entry. Unlike liens on real estate as set forth above, there is no requirement to “revive” the judgment as set forth above for purposes of executing against personal property.

Conclusion

The key lesson is that obtaining a judgment is an important legal victory, but it is not a guarantee of recovery. For creditors, success usually comes not from the judgment alone, but from early investigation, fast enforcement, and realistic expectations about what the law actually allows them to reach. An even better practice is for creditors to obtain legal counsel to consult the best ways to structure different business arrangements to

• mitigate potential defenses prior to obtaining a judgment and
• maximize chances of an actual recovery.

If you are a lender, landlord, creditor, or business owner, understanding your rights and limitations under the law is critical to strategizing your litigation strategy and your post-litigation strategy.

Consulting with counsel that is familiar with post-judgment collection is vital in making recommendations that are both legally sound and keep your business objectives in mind.

Stark & Stark regularly lenders, landlords, creditors, and business owner in many aspects of legal disputes, including representing them in post-judgment collections, bankruptcy court, and otherwise.