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Publication

July 23, 2014Client Alert

The Wisconsin Supreme Court Puts Judgment Creditors at Risk by Changing 150 Years of Law on How to Obtain a Priority Lien against a Judgment Debtor’s Personal Property

On July 15, 2014, the Wisconsin Supreme Court made it much more difficult, costly and cumbersome for a judgment creditor to obtain a priority lien against the personal property of a judgment debtor. Associated Bank, N.A., v. Jack W. Collier, 2014 WI 62. Two members of the court disagreed with the decision and argued that it has changed 150 years of Wisconsin law.

 

Prior to the Associated Bank decision, the creditor could obtain a priority lien over unsecured creditors by docketing its judgment, starting a supplemental proceeding and serving the judgment debtor with an order to appear at a supplemental proceeding. As soon as debtor was served, the judgment creditor had a blanket lien on the debtor’s personal property that was superior to all unsecured creditors. The creditor could immediately pursue collection through the supplemental proceeding, could liquidate the debtor’s personal property, could negotiate with the debtor or could wait until the debtor was forced to pay the judgment to remove the lien on the property.

 

The Supreme Court has now made this more difficult. A judgment creditor with a docketed judgment does not have any priority lien on a debtor’s personal property until the creditor takes further steps to identify the specific personal property and actually levy on that property. And even then, the creditor’s lien only extends to the specifically identified property and other unsecured creditors may still get priority over other property. The Supreme Court reinforced the unavailability of a blanket lien to an unsecured judgment creditor in a decision announced the same day that did not permit a judgment creditor to obtain any priority lien against the debtor’s after acquired property. Attorney’s Title Guaranty Fund, Inc. v. Town Bank, 2014 WI 63.

 

These two Supreme Court decisions will have a significant impact on the rights of judgment creditors. Judgment creditors can no longer be passive in collecting judgments without the risk of having other unsecured creditors getting a superior interest in the debtor’s personal property. The Supreme Court has now required judgment creditors to affirmatively pursue collection of their judgment to mitigate the risk of losing rights against personal property as against other unsecured creditors.

 

To insure the best opportunity to assert a priority lien against a debtor’s personal property against other unsecured creditors, creditors should review their collection procedures to insure the following procedures are considered:

  1. Promptly docket any judgments and confirm that the judgment appears on the docket.
  2. Take steps to identify the debtor’s non-exempt specific personal property.
  3. Take steps to levy on that non-exempt property by, for example, having the sheriff execute on the property, serve a garnishment or obtaining a court order to apply specific personal property to satisfy the judgment.
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