Prejudgment Asset Preservation and Recovery

Many times, if evidence exists that a potential judgment debtor may waste available assets or otherwise dispose of assets that could be collected after a judgment is entered, there are a variety of judicial processes that our attorneys can pursue to secure the assets. In addition, if a debtor’s assets are subject to multiple claims or liens, the experienced attorneys at Powers Taylor can assist with preserving property and assets for judicial determination of competing lien claims. Some of the judicial and non-judicial processes available in Texas to protect assets before a judgment or arbitration award is entered include:

Non-judicial repossession is a process through which a secured creditor may obtain possession of secured collateral after a debtor defaults. Although non-judicial repossession is available prior to filing a lawsuit, the limitations on non-judicial repossession are many, including the requirement that any person attempting to repossess.

Sequestration is a statutory remedy available to preserve property during litigation that is the subject of multiple competing claims or liens. A writ of sequestration is only available after a lawsuit has been filed, and it does not affect the title of the property. The purpose of sequestration is to protect and preserve property during the litigation process until a final judgment is entered that determines who owns or has superior rights to the property.

Similar to the remedy of sequestration, attachment is a statutory judicial process by which a creditor can seize a debtor’s non-exempt property prior to obtaining a judgment. Attachment is the process of executing, or levying upon, a debtor’s assets to prevent a debtor from disposing of the assets prior to judgment being entered. As with sequestration, however, attachment is only available after a lawsuit is filed.

Garnishment is the statutory judicial procedure in Texas by which a party may preserve assets that are in the possession of a person or business not involved in the litigation. Generally, once a pre-judgment writ of garnishment is issued by a court and properly served on the third party holding non-exempt funds or assets belonging to the debtor, the assets are essentially frozen until the writ of garnishment has been dissolved, modified, or substituted. Pre-judgment garnishment is an effective and often used procedure in Texas to secure and preserve assets pending the final outcome of litigation over a commercial debt.

Another judicial process available to a creditor is the remedy of receivership. Receivership is a judicial process in which a court appoints an independent receiver to maintain possession of property and represent the interests of all persons and entities that have an interest in the property. While typically considered a harsh remedy of last resort, a receivership can drastically affect the outcome of a debt dispute.

Depending on the type of commercial collection matter and the specific issues involved, injunctive relief in the form of temporary restraining orders, temporary injunctions, and permanent injunctions are additional remedies available in many commercial collection lawsuits.

In addition to the various judicial and non-judicial processes available to creditors to preserve a judgment debtor’s assets during the litigation of a commercial collection or debt dispute, in certain circumstances parties may petition the court to enter injunctive relief in the form of a temporary restraining order to help ensure that an alleged debtor does not waste or dispose of its assets prior to a judgment.

Generally, the purpose of a temporary restraining order is to “preserve the status quo” until the court overseeing the litigation can conduct a hearing to determine whether a temporary injunction should be entered in the case. The benefits of a temporary restraining order are that the court has broad powers to both prohibit a party from taking certain action and to require a party to take certain action. In the context of a commercial debt collection dispute, a temporary restraining order typically will require the responding debtor to preserve certain assets that may be at issue in the case, not waste funds or assets that could be used to satisfy an alleged debt, or take further action that is required to preserve business assets or income.

Other important aspects of temporary restraining orders in commercial debt collection cases in Texas include:

  • A temporary restraining order may be granted ex parte, that is, without notice to the opposing party
  • The party requesting a temporary restraining order is typically required to post a bond in an amount determined by the court to protect the responding party from damage
  • A petition must be filed concurrently with or before the application for temporary restraining order is filed
  • A temporary restraining order is only valid for fourteen days following its issuance, and it may be extended by a court once for an additional fourteen days

A temporary injunction, also termed a preliminary injunction in most federal courts, is the process by which a court preserves the status quo and provides specific relief during the course of the litigation. In cases in which a court has already entered a temporary restraining order, a temporary injunction is typically an extension of the relief granted in the temporary restraining order through the trial and judgment in the case. In contrast to a temporary restraining order, to issue a temporary injunction, a court must conduct a hearing after all parties have been provided notice.

Although not commonly a part of most commercial or debt collection cases, another aspect of injunctive relief available to creditors in Texas is a request for a permanent injunction. Similar to temporary restraining orders and temporary and preliminary injunctions, a permanent injunction typically permanently prevents a party from engaging in certain acts.

The lawyers at Powers Taylor have extensive experience in obtaining various forms of injunctive relief for clients in commercial disputes, including temporary restraining orders and temporary and preliminary injunctions. If you have a commercial debt dispute and have concerns that the debtor may improperly dispose of assets or funds in an effort to prevent collection, contact us today to discuss your potential case and what type of injunctive relief may be appropriate in your case.