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B. LANE HASLER, P.C. LEGAL NEWS - 2018
How to Respond to A Citation to Discover Assets
So a judgment was entered against you, and you received a document entitled "Citation to Discover Assets".
You probably know about the judgment, since the complaint that started the lawsuit had to have been served on you.
However, if it was not served on you, that is a potential defense. No service, no jurisdiction for the court to enter a judgment against you. You need to hire an attorney and attack the judgment.
But more likely than not you were served and either litigated and lost or ignored the service and a "default" judgment was entered against you because you did not appear and defend yourself.
If you litigated and lost, you likely had an attorney and that attorney should have already advised you about post-judgment actions such as a motion to reconsider, motion to set aside or appeal. But if you did the litigation yourself ("pro se") or if you didn't defend in the litigation, and you are within 30 days of the date of the judgment then you need to hire an attorney immediately to see if you have any post-judgment options. The deadlines are firm - miss them and even if you have a valid post-judgment remedy you won't be able to use it.
All of the foregoing analysis is necessary before dealing with the citation to discover assets. Illinois is unique in having a statute, 735 ILCS 1402, that allows a judgment creditor to both obtain a lien against the personal property of a judgment debtor and compel the judgment debtor to provide documents and appear for examination about the judgment debtor's assets.
The statute allows a judgment creditor to have a citation to discover assets is issued by the clerk of the court. This is typically done using a form on the clerk's website. The service by the judgment creditor of the issued citation on the judgment debtor creates a lien in favor of the judgment creditor on all of the judgment debtor's non-exempt personal property. At this point, the judgment debtor is prohibited from using any non-exempt property and violation of the citation lien can result in the responsible person being found contempt of court. This means the judgment debtor if an individual, but also includes the person in control of an entity if the judgment debtor is a corporation, limited liability company or partnership.
The judgment debtor now needs an attorney to first determine what property is exempt and can be used pending a review of the citation to discover assets. Illinois has a list of personal property that is exempt from creditors. If the judgment debtor needs to use non-exempt property, then the judgment debtor must ask the court for permission and show how the use of that non-exempt property won't hurt the judgment creditor. For example, a judgment debtor that is a business may need to use cash to pay employees so work in process may be completed thereby generating accounts receivable that exceed the amount of cash used thereby improving the judgment creditor's position.
Simultaneously with determining the exempt property and the need to use non-exempt property, the judgment debtor's attorney needs to review the citation to discover assets to determine if it has any defects that would allow it to be "quashed" (ie terminated).
A motion to quash a citation avoids the immediate need for the judgment debtor to turnover financial records and appear for examination.
The judgment creditor can always fix the defects and issue a new citation, but during the time that the citation is being challenged, the judgment debtor has an opportunity to do three things. First, get a clear understanding of all options, including a bankruptcy filing. Second, create a plan to sell assets or borrow money to create a settlement fund. Third, create and negotiate a settlement of the judgment.
A citation to discover assets is a very powerful tool for a judgment creditor, but all is not lost for the judgment debtor if an attorney skilled in collection law is hired quickly before the expiration of deadlines or entry of further orders enforcing the citation to discover assets.
How to Collect from A Dead Person.
It is difficult enough to collect money from a live person, but when an individual debtor dies - don't give up. Perversely, it actually may be quicker and easier to collect a claim through the administration of the debtor's estate.
The first step is to gather the key documents evidencing the claim. If there has already been a lawsuit that resulted in a judgment, the judgment order is all that is necessary. If there has not been a judgment order entered, then the contract, order form, shipping invoice or other documentation showing why the debtor owes money is required.
The second step is to attempt to identify a representative for the deceased debtor. This should start with an attorney, if the claim was already in the process of collection. If not, then contact a former business associate or employee to determine the next of kin contact information. If still no success, try online obituaries.
The third step is to contact the representative and to determine if a probate estate will be opened to handle the deceased debtor's liabilities. This will be a straightforward conversation if dealing with an attorney, but if contacting the next of kin, the approach should include asking if there is an attorney representing the deceased debtor's estate. Although this is a business matter, sensitivity to the personal side should not be overlooked.
The fourth step depends on whether or not there will be a probate estate opened. If the representative confirms that a probate estate will be opened, then the initial action calls for the deceased debtor's will to be filed with the court. This must be done within 30 days. Once this is done, the person named as executor in the will must file a petition to open a probate estate. If there is no will, then any heir may file a petition to open a probate estate. There is no deadline to open a probate estate, so the representative may stall and hope the creditor either goes away or fails to timely file a claim.
But what if neither the executor or any heir timely opens a probate estate or if the representative states that no probate estate will be opened? The creditor has the right to open a probate case for the deceased debtor. The creditor files a petition to open a probate case and pays the filing fee. This will generate an initial hearing date at which the creditor nominates a person to serve as personal representative of the probate estate. Typically, this is an independent person identified by the creditor's attorney who will be paid first by the creditor, who will later be reimbursed from the deceased debtor's probate assets.
This last point is important - there is a cost for a creditor to open a probate case. If the creditor is a business entity, then it must hire an attorney to appear for it. Even if the creditor is an individual, there is the probate filing fee and the need to find an independent person to serve as the estate's representative, typically for an hourly fee. The decision to proceed must be done after confirming the existence of some assets owned by the deceased debtor which are not already encumbered by another creditor.
Once a probate case is opened, the fifth step is to submit a claim. If the deceased debtor's representative is cooperative or if the creditor opened the probate estate, then the claim may be sent to the representative by certified mail. The deadline for making a claim has three parts: (1) two years from the date of death; (2) 3 months from the date that the representative sends notice of the filing of the probate case to the creditor; and (3) if no notice is sent, then 6 months from the date that the representative publishes notice of the filing of the probate case in a newspaper. The representative has 30 days to object to the claim. If the representative objects, then the claim must be filed with the probate court and a filing fee paid. If the representative is not cooperative, then there is no point in sending the claim to the representative and the creditor should skip that step and file it with the probate court (and still send a copy to the representative).
The sixth step is to monitor the case to determine when the inventory, statement of heirs, accounting and proposed closing order are filed. In order to ensure that these documents are sent to the creditor, an appearance must be filed and a filing fee paid. Otherwise, it is a matter of periodically checking the court docket.
The seventh step is to make any objections to filed documents. The inventory may not include all known assets or may not undervalue those assets. The accounting may include claims that are disputed, particularly claims by heirs or related parties. The proposed closing order may not properly calculate the exempt property or payments to creditors. If any objections are found, these must be filed with the court, which will allow the representative to respond, then conduct a hearing to resolve the objection.
As part of the seventh step, the representative may object to the claim. If this happens, then the claim is litigated in the probate court in a streamlined manner as would have occurred if the debtor had not died. The parties are each entitled to take discovery. The representative is entitled to assert defenses, both factual and legal. The probate court will conduct a hearing to determine the validity and amount of the claim.
The eighth and last step is to receive payment on the claim. This will occur prior to the order closing the probate case, so if payment has not been received, an objection to closing the case must be filed.
The steps to collecting from a deceased debtor are tedious, but not impossible. The process can actually be quicker and cheaper than if the creditor was to proceed in "regular" court. So, all is not lost when a debtor dies - a determined creditor can still get paid.