Executing on civil judgments in North Carolina became more difficult in late 2011 when the Administrative Office of the Courts advised all district and superior court judges, as well as all clerks of court, that ex parte orders in aid of execution (orders made without notice to the opposing party) should no longer be issued.
Previously, after obtaining a money judgment and having a Writ of Execution issued, the judgment creditor could file a Motion for Order in Aid of Execution without notice to the judgment debtor, along with a proposed order to be issued by the clerk of superior court in most instances. Once issued, the Order in Aid of Execution allowed banking institutions to freeze non-exempt monies in the judgment debtor’s account(s) and turn the funds over to the judgment creditor in full or partial satisfaction of the outstanding judgment.
The court’s authority to issue orders in aid of execution is found in North Carolina General Statute § 1-359, which generally provides that upon issuance of an execution against property, all debtors of the judgment debtor (e.g., the debtor’s bank) may pay the sheriff the amount of their debt to the debtor (e.g., funds on deposit in the debtor’s bank account) to satisfy the execution. Orders in Aid of Execution typically have been issued without notice to the judgment debtor for two reasons. First, as the North Carolina Supreme Court held in 1906, the judgment debtor already received legal notice of the lawsuit, and the standard notice requirements do not apply post-judgment. Second, as a practical matter, if a judgment debtor has advance notice that the sheriff may seek to seize funds on deposit in their bank account, the debtor is likely to withdraw the funds before the sheriff has time to reach the bank.
While the underlying North Carolina statutes and case law regarding orders in aid of execution and legal notice have not changed, the procedure for obtaining such orders has changed. Judgment creditors may still seek and receive an order in aid of execution, but must give prior notice to the judgment debtor and an opportunity for a hearing. This new process is intended to protect the due process rights of judgment debtors, but does make it more difficult for judgment creditors to realize benefits from obtaining orders in aid of execution.
If a judgment debtor transfers or sells non-exempt assets in an effort to keep them from a judgment creditor, this may constitute a fraudulent transfer under North Carolina law. However, judgment creditors often decide that it is not cost-effective to file a lawsuit to obtain a judgment that the debtor fraudulently transferred assets and must turn over the assets or their value to the creditor. Other post-judgment options exist for judgment creditors to find and seize assets of judgment debtors, but these options also tend to be time-consuming and expensive, and may be cost-effective only in large-dollar cases or in instances where the judgment debtor is known to have significant non-exempt assets.
In conclusion, creditors are advised to discuss their pre- and post-judgment collection options with legal counsel and do a thorough cost-benefit analysis before deciding how to proceed. With the recent changes in procedure for North Carolina orders in aid of execution, this kind of analysis may yield different results today than it did less than a year ago.