Does Washington State have Debtor’s Prison?

Debtor's PrisonYes.  No. Sort of.
Here’s what most creditors (or debtors) don’t realize.  Once a creditor has reduced his claim to a judgment, he now has rights to convert his judgment (what they call in the biz, “levy upon execution”) to cash.  This is done by garnishing wages, garnishing financial accounts, foreclosing real property liens, if any, or getting the county sheriff to take and sell the debtor’s personal property.

The question is this: how do you know where the financial accounts are so that you can garnish them?   The answer is you ask the court for an Order for Supplemental Proceedings, which is a court order, requiring the debtor to appear in court, and truthfuly testify about his assets and their whereabouts.  A creditor can ask to see the debtor’s tax returns, bank statements, certificates of title and deeds (and anything else reasonably calculated to learn where the debtor’s assets are located).

What happens if a debtor just doesn’t show up to testify?  This is where things can get nasty.  The creditor then asks the judge to sign a bench warrant for the creditor’s arrest.  The warrant gets filed with the county sheriff, and while the police will not actively look for the debtor, if he is ever pulled over, the warrant will show up, he’ll be arrested, and will spend a few hours in jail before he posts bail.  So technically, that isn’t debtor’s prison, because the offense is not being a debtor, but ignoring a court order to appear and testify.  But if you’re the debtor, it’s still time in jail, however characterized.

Why Do I Record my Judgment?

TEP gets this question at least once a month, so we’re posting it, along with an answer.  The question is this:  When and why do I need to record a judgment?

The answer is this:  “A judgment against the owner of a homestead shall become a lien on the value of the homestead property in excess of the homestead exemption from the time the judgment creditor records the judgment.”  See RCW 6.13.090  (Currently, the homestead exemption is $125,000.)  If the judgment is not recorded, then it is not a lien on the homestead.  If you’re not dealing with homestead property, then mere entry of the judgment on the court’s docket is sufficient for it to be a lien on the real property.  See RCW 4.56.190, .200.  Remember, a judgment in one county is not a lien on real property in another county until the judgment is “transferred” to the other county.

Which brings us to the next point:  What if the judgment is in one county, but
the real property is in another county?
  You must abstract the judgment to the new county.  An “abstract” is a piece of paper you obtain from the court clerk, and file it in the court to which you are transferring the judgment.  Once transferred to the new court, the judgment gets a new case number, and is a lien on the judgment-debtor’s non-homestead real property in that new county.  Any efforts to collect on the judgment in the transferee county must be done under the new cause number.  And again, if the homestead is in the transferee county, you must also record the judgment with the Auditor/Recorder in the new county.

Attached here is a fabulously written appellate brief by our former colleagues at Graham & Dunn that dissects the judgment lien statutes.  The case is Fisher Broadcasting v. Squirrels Nest II, LLC.  In this case, Fisher Broadcasting won judgment against a contractor, who sold his rental condo to third-party buyers.  The judgment was entered on the court’s docket just two days before the sale closed – meaning the title company, Old Republic, missed the judgment.  The sale closed with Fisher’s lien on title.  Old Republic tried to avoid the lien for the insured-buyers, arguing they took free of the lien because they had no way of knowing about it before the sale.  The court agreed with Fisher Broadcasting and upheld the lien.  The unpublished opinion (affirming Fisher’s summary judgment) is here.