What if you cannot pay the damages in a civil law suit?

Question

This question is in response to the defamation case between Mr Johnny Depp and Miss Amber Heard. Mr Depp claims that the defamation damages amount to 50 million dollars. Now suppose that the jury awards damages in the full amount asked. What happens if Miss Heard cannot find 50 million dollars to pay Mr Depp? Or in general, what happens if the defendant does not have enough money to pay a civil judgement?

Answer 1

Short Answer

If a judgment debtor is unable to pay the full amount of a judgment entered against the judgment debtor in a lawsuit, then the judgment creditor doesn't get paid until the judgment debtor is able to pay and the judgment creditor takes action to enforce the judgment at that time.

To the extent the a judgment debt has an ability to pay as determined from assets and income which are not exemption from creditor's claims under the relevant state law, there are a variety of court supervised means by which a judgment creditor can involuntarily have that those assets and that income turned over to the judgment creditor.

Many judgments are never paid in full.

Long Answer

Judgment Creditor's Rights, In General

A money judgment entered in a lawsuit is a right of a judgment creditor represented by a court registry entry or piece of paper to use involuntary debt collection methods to obtain property (defined broadly) from a judgment debtor.

Until the judgment is paid in full, the judgment creditor can continue to use these methods so long as there are assets not exempt from creditors, or income not exempt from creditors that the judgment debtor has available to them.

Judgment creditors can't collect from someone who has no assets or income that is not exempt from creditors claims (a complicated list that varies from state to state and can be different as a general rule, in bankruptcy, in probate, and for special kinds of debts like child support debts). When a judgment debtor has no non-exempt assets or income worth that are cost effective to collect, the judgment debtor is called "judgment-proof" and the judgment creditor has no ability to collect further until the judgment debtor ceases to be judgment-proof.

Despite the long list of options for judgment creditors set forth below, in practice, lots of judgments are paid voluntarily and lots of judgments expire before they are paid in full because the judgment debtor is judgment-proof or are discharged in bankruptcy.

Formal means of involuntarily collection discussed below are the exception rather than the rule.

This is, in part, because having unpaid judgments is horrible for your credit, in part, because collection activity is extremely disruptive to the judgment-debtor's life, and in part, because judgments accrue post-judgment interest which is often at a high interest rate so there is an incentive to pay it off sooner so that the judgment debtor owes less to the judgment creditor overall.

Another factor is that most people get judgments against them because they owe debts that they don't have an ability to pay (e.g. due to a lost job) and the existence of a money judgment against them doesn't create an ability to pay.

Voluntary compromises between judgment creditors and judgment debtors pursuant to agreed payment plans with judgment creditors not taking collection action way judgment debtors are current on payment plans are also very common, since they solve many hardships arising from formal collection for the judgment debtor and reduce collection costs for the judgment creditor.

The relevant law of creditor's rights and debtor's remedies, with the exception of bankruptcy and a few nationally mandated exemptions from creditors is predominantly a matter of state law.

For almost all practical purposes, the remedies available for failing to pay a federal court civil judgment are the same as those available for failing to pay a state or local court civil judgment.

Typical Collection Methods

Typically, a judgment creditor can:

• Impose judgment liens on real property owned by the judgment debtor (subject to a homestead exemption) and foreclosed on that lien to get the property in full or partial payment of the debt. It is also possible to impose a judgment lien and refrain from foreclosing and instead to wait until property is sold and collect from proceeds at a closing upon that sale of property subject to a judgment lien. Judgment liens have a very high priority in bankruptcy once they have been imposed on property and all formalities for doing so are completed.

• Garnish bank accounts, wages, and other amounts owed by third-parties to the judgment debtor.

• Set off money owed by the judgment creditor to the judgment debtor against money owed by the judgment debtor to the judgment creditor.

• Seize tangible personal property (e.g. cars, gold bars) that are not exempt from the claims of creditors from a third-party, and also some intangible property (e.g. shares of stock in a corporation).

• Compel the judgment debtor to disclose the judgment debtor's assets and income sources under oath to the judgment creditor.

• Imposing a "charging order" on a pass through entity interest like an LLC.

• Sue people to whom the judgment debtor transferred property without substantially equivalent value within the applicable time period to "claw back" those assets that were given away or sold in bargain sales within the applicable statute of limitations.

• Assets subject to liens or mortgages can be placed in receiverships pending their seizure in foreclosure sale.

• In unusual circumstances, a court can order that specific property be transferred or delivered by the judgment debtor to the judgment creditor in exchange for a specified credit against the judgment.

• Additional remedies are available to child support creditors (and in rare cases certain other creditors). For example, denying child support debtors driver's licenses, professional licenses, seizing tax refunds, and throwing the judgment debtor in jail for willfully failing to pay child support when there is an actual ability to pay the child support debt. But, no debtor can be incarcerated merely for inability to pay, if this is established.

• Collect from guarantors or sureties of the debt including insurance companies in the case of insured claims, and bonding companies in the case of bonded debtors for debts covered by a bond. Similarly, private sector employers are typically liable for all judgments entered in the course of lawsuits naming them against their employees for tortious conduct (e.g. accidents) in the course of their employment and can be a source of collection for a debt.

• In certain circumstances, usually due to a voluntary mortgage-type agreement but also for certain kinds of debts related to property, a judgment debtor has a lien on real or personal property before the lawsuit is filed that can be enforced as a "secured debt" by seizing the collateral, often, even without finishing a lawsuit. But, ordinary lawsuit judgments usually don't have these rights.

Duration Of A Judgment

Typically judgments confer these debt collection rights for a fixed period of time, often six years in a court of limited jurisdiction (e.g. small claims court) and often twenty years in a court of general jurisdiction (which typically also has criminal jurisdiction over felonies).

Often, these deadlines for collection can be extended and renewed if payment is not made in full during that time period if the judgment creditor takes affirmative legal action to do so in the right time period near the expiration of the judgment.

Often a judgment debtor who is judgment proof when the judgment is entered may somehow gain assets (e.g. winning the lottery or receiving an inheritance) many years later at which point the judgment creditor can use the judgment to collect from the judgment debtor.

Geographic Scope Of Collection Rights

Initially, a judgment applies only in the state where it is entered, but it can easily be transferred to another state in most cases, with a basically administrative effort. The "full faith and credit clause" of the U.S. Constitution makes it easy to transfer a money judgment from one U.S. state to another U.S. state.

But, the process is trickier in a foreign country. Many U.S. tort judgments (including judgments for defamation) are not automatically recognized in most foreign countries and may have to be reproven to collect on a claim in a foreign country (at least in part and often with fewer damages) from assets only subject to the foreign country's jurisdiction. If a U.S. person diverts or transfers assets to a country where a U.S. judgment cannot be enforced, however, with an intent to harm that creditor or creditors in general, that U.S. person can often be held in contempt of court and incarcerated until those assets are voluntarily repatriated.

Voluntarily Repayment

A judgment debtor can voluntarily pay amounts owed on a judgment and often does so in order to reduce the amount of post-judgment interest that accrues on the debt.

The judgment debtor and judgment creditor can agree to payment plans or other resolutions in lieu of using the formal rights set forth above.

"Voluntary" in this sense, however, is a somewhat loaded term. In practice, the terms and amounts of "voluntary" payments of judgment debts are negotiated "in the shadow" of the judgment creditor and judgment debtor's formal legal collection rights and defenses, with the parties sharing in some kind of windfall arising from the fact that collection costs are reduced when there is a voluntary repayment rather than formal legal action.

Creditors Rights Related To Gifts And Third-Party Trusts

Judgment creditors generally can't collect out of benefits provided in kind for the benefit of a judgment debtor gratuitously by a third-party with no wealth or income traceable to the judgment debtor who has no duty to pay a third-party judgment.

For example, a judgment creditor can't collect from a house owned by a wife prior to marriage and titled in wife's name and not derived from husband's assets, in a non-community property state, where a husband lives rent-free and with food and health care provided free of cost, with his wife, if the judgment debt is not for household necessities).

Similarly, assets in a discretionary spendthrift trust set up by the parents of a non-disabled adult judgment debtor to which the judgment debtor did not directly or indirectly contribution, which makes distributions to the judgment debtor only by making purchase for the benefit of the judgment debtor that don't give rise to non-exempt property of the judgment debtor can't be reached by a judgment creditor.

Fighting Money Judgments

Judgment debtors can appeal a money judgment, or seek to have it set aside, for narrow legal reasons, most of which have short deadlines. Once there are no appeals left and the most common post-judgment motions have been exhausted, the judgment is final and there are far fewer ways to set it aside (usually, discharge in bankruptcy, expiration of the judgment for being too old, and the argument that the court didn't have jurisdiction to enter the judgment in the first place are the main ways to set aside a final judgment where the main deadlines have already expired. The relevant deadlines usually run from the date that the money judgment is entered even if the debtor was unaware that the money judgment was entered).

A judgment debtor, pending appeal, can post a bond for an amount greater than the amount of the judgment (125% plus anticipated appellate court costs in Colorado) to prevent the judgment creditor from collecting by these means pending appeal, from which the judgment is payable if the appeal is unsuccessful in whole or in part.

A bankruptcy also temporarily suspends collection efforts without court approval in order to allow for an ordinary liquidation and distribution of assets and/or reorganization of a debtor's financial affairs.

A "debt collector" as that is defined under state and federal law respectively, has various legal rules that the debt collector must follow when collecting debts that result in penalties (although rarely the loss of any ability to enforce a judgment debt) if not complied with, which can be enforced by debtors, in class action lawsuits, or by the relevant government officials (often the U.S. Justice Department and state attorneys-general).

Bankruptcy For Individuals

A judgment debtor can file for bankruptcy, if this option is available, in which case the collection of the judgment is handled in the bankruptcy process.

A Chapter 7, once assets available at the time of filing are distributed to creditors, discharges some, but not all, kinds of debts. Some kinds of debts (e.g. most intentional tortious conduct judgments including most defamation judgments) can't be discharged in bankruptcy if a timely objection to discharge of that debt is filed by the debtor in a bankruptcy case. More complicated kinds of bankruptcies are available for individuals under Chapters 11, 12 and 13, which usually involve payment plans and/or customized treatment of certain assets.

In most but not all bankruptcies (even under Chapter 7), an individual debtor must enter into a payment plan to creditors in addition to giving up all non-exempt assets.

Disposition Of A Judgment Creditor's Claims At Death

One a judgment debtor dies, if there is a judgment outstanding, the judgment creditor can file a claim in the estate of the judgment debtor and that is paid to the extent that there are funds available and not exempt from creditor's claims in order of priority under the law. But, next of kin are not responsible for a judgment debtor's debts.

Probate estates cannot file for bankruptcy, but a probate proceeding often has an impact on creditors similar to a Chapter 7 bankruptcy (although by no means identical).

Entity Debtors

The analysis is similar, but bankruptcy works differently and there are far fewer exemptions from creditors, in the case of a judgment owed by an entity that is a judgment debtor to a judgment creditor.

A full treatment of entity insolvency proceedings is beyond the scope of a reasonable answer to this question. Entities filing Chapter 7 bankruptcies and availing themselves of non-bankruptcy insolvency proceedings don't have their debts discharged, but become shells with debts, but not assets since all of their assets get distributed to creditors.

Entities that reorganize under Chapter 11 can arrange to pay creditors less than the full amount that they are owed subject to some basic ground rules which usually entitled creditors to at least as much over the duration of a Chapter 11 plan as the creditor would receive in a Chapter 7 liquidation bankruptcy.