Glossary
Debtor Examination
A debtor examination is a post-judgment proceeding in which a judgment debtor, or its officer, must appear and answer questions under oath about its income, assets, accounts, and property.
Winning a judgment is only half the job. The other half is finding assets to collect from. A debtor examination is a tool for doing that. Depending on the state, it may be called a judgment debtor examination, supplementary proceeding, citation to discover assets, or post-judgment deposition. In federal court, Rule 69 of the Federal Rules of Civil Procedure allows post-judgment discovery under federal or state procedures. In each form, the creditor can require the debtor to answer questions under oath and often to bring financial records.
When the judgment debtor is a business, the examination is usually directed to an officer, owner, or person most knowledgeable about its finances. Common topics include bank accounts, customer lists and receivables, equipment and vehicles, real estate, transfers of assets to insiders or related companies, and the debtor's relationships with lenders. In many states, the court can also issue orders preventing the debtor from transferring certain property, and a debtor who fails to appear can face contempt proceedings. The procedures and available orders vary by state.
Here is a fictional example. An office equipment dealer, Lakeview Business Systems, holds a $36,000 judgment against an accounting firm that has ignored payment demands. At the examination, the firm's managing partner testifies that the firm banks at two institutions and that several large clients pay on retainer each month. The partner also admits that the firm transferred a company vehicle to his spouse after the lawsuit was filed. Lakeview uses the information to serve bank levies and evaluate a claim to recover the vehicle transfer.
Debtor examinations matter to a creditor because they convert a paper judgment into a map of collectible assets. They also apply pressure. Many business debtors would rather negotiate a payment arrangement than have an owner sit for a detailed examination under oath.
Example
At a debtor exam, the judgment debtor's partner discloses two bank accounts, monthly retainer clients, and a vehicle transfer to his spouse, which shapes Lakeview's next steps.