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Writ of Attachment -- One of the Most Powerful Tools in the Creditor's Toolbox
The following article appeared in the Spring 2009 issue Blakeley & Blakeley's Trade Creditor's Quarterly.
Creditors seeking to collect on a delinquent account often find themselves waiting six months or sometimes much more for entry of a judgment before they can collect. However, in most states, creditors can take advantage of the state's prejudgment remedies to elevate their status from an unsecured creditor to secured creditor in the interim while they seek their judgment.
Attachment is a prejudgment remedy that allows a creditor to assert a lien on the debtor's assets until final adjudication of the claim sued upon. To obtain a writ of attachment, the creditor must follow statutory guidelines in applying for the attachment and establish a prima facie claim, and the court is required to make a preliminary determination of the merits of the dispute. This will usually cause the debtor to reevaluate its position, facilitating early settlement of the case. It will also give the creditor a preview of the debtor's potential defenses to the case.
There are risks to consider. Attaching a debtor's assets may precipitate bankruptcy. If this occurs within 90 days after the writ is levied, the attachment lien terminates automatically and the creditor is relegated to unsecured status. Also, if the creditor ultimately loses the claim on which the attachment was based, it can be sued for wrongful attachment.
States have very different standards for the issuance of a writ of attachment. Some states take a conservative approach and will only issue an attachment against a foreign debtor, or where the party is a victim of a crime, or where the debtor with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in the creditor's favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state. However, other states, including California, allow the issuance of an attachment if the claim sued upon meets the following requirements:
- A claim for money . . . based upon a contract, express or implied";
- Of a "fixed or readily ascertainable amount not less than $500";
- That is either unsecured or secured by personal property, not real property (including fixtures); a
- That is a commercial claim.
Because attachment lies only on contract claims, a creditor with alternative tort and contract claims based on the same set of facts (e.g., for the value of property obtained by fraud) "waives" the tort claim by obtaining a writ of attachment, so special consideration must be given if such claims exist.
Procedurally, the attachment is made through an application and hearing. Generally, attachments may be heard according to standard notice procedures. However, in California a creditor may move the court on an ex parte, or emergency basis, provided the creditor demonstrate "great or irreparable" injury to the creditor if the matter is heard on regular notice. This normally requires a showing that the property to be attached will disappear or be harmed pending a noticed hearing. Great and irreparable injury is deemed established, without further showing, in cases involving a bulk sales notice or liquor license escrow. Irreparable injury may also be inferred where the creditor files detailed affidavits showing the debtor is insolvent in the bankruptcy sense (failing to pay when due debts as they come and not subject to bona fide dispute). This is typically done by showing that the debtor has failed to pay other creditors or has ceased operating. At a minimum, many courts will grant an ex parte temporary protective order that prevents the debtor from transferring assets outside of the normal course of business pending a noticed hearing on the application for writ of attachment.
As for property to attach, all property within California held by a corporation, partnership or unincorporated association is subject to attachment if there is a statutory method of levy for the property. Practically speaking, the creditor will often look to levy on the debtor's bank account, accounts receivable or inventory. Property belonging to an individual, such as guarantor, is subject to attachment only if it falls within one of the categories such as real property, money, securities, etc. All other property belonging to an individual is exempt. Once attached, the property is taken into the possession of the sheriff or marshal. As set forth, an attachment can be in essence a preview of things to come in the creditor's attempt to collect on that delinquent account -- a method to shortcut through what can be a long and sometimes fruitless process in obtaining a judgment. While sometimes expensive and somewhat risky, the writ of attachment may be the way to create leverage and get yourself paid.
Bradley Blakeley, Esq., earned his bachelors degree from Loyola University, Los Angeles, California, and his law degree from Santa Barbara College of Law (J.D.). Practice areas he specializes in are: commercial law and bankruptcy litigation.
He can be reached at bblakeley @ blakeleyllp.com.