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Protecting Assets Through Pre-Judgment Remedies

Allowing a bankruptcy to proceed without taking the time to protect asset value can spell financial disaster for a creditor. Once a bankruptcy judgment is made, a creditor’s options for enforcing collection become limited. Likewise, the payment of debt will often follow a priority system meaning that funds might be exhausted well in advance of repayment.

What options does a creditor have in this situation?

In sports parlance, the best offense is a good defense. Creditors are typically concerned that priority debts will be paid off with whatever assets the debtor has before discharging the rest of the debt. If the creditor isn’t one of the priority debts, it is likely that he or she will never be repaid. The biggest opportunity a creditor has is to seek a pre-judgment remedy to protect his or her stake in various assets. Two of the most common pre-judgment remedies are replevin and attachment.

  • Replevin: A replevin action or replevin order is a remedy that allows the creditor to recover property that is the subject of a debt. If lease payments are not made on furniture, for example, a creditor can pursue replevin and recover the item itself. Typically, the county sheriff will execute the order by seizing the property and delivering it to the creditor. Certain notice and hearing requirements must be met, but might be waived if the property is in imminent danger of destruction or there are other exceptional circumstances.
  • Attachment: Pre-judgment attachment details vary by state, but the general theme is similar to garnishment. If a creditor pursues an attachment proceeding, there is usually a court hearing where the creditor must prove to the court there are extraordinary circumstances such as the fear that the debtor will attempt to dispose of the property.

By quickly identifying a potentially challenging situation and acting in the best interest of the company, a creditor can protect valuable assets and recover items rather than their money value. It is wise to talk to an attorney experienced in legal matters such as replevins and repossessions.

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