Wisconsin Supreme Court’s Decision in Associated Bank N.A. v. Collier Changes the Rules for Collecting Judgments

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In Wisconsin, supplemental proceedings under Wis. Stat. ch. 816 are the principal tool by which a judgment creditor can discover assets of the judgment debtor in aid of collection. But for the last 15 years, they have also been the mechanism by which sophisticated judgment creditors have obtained a lien in all the personal property of the judgment debtor, simply by serving the debtor with an order to appear before a court commissioner for examination. This was the holding of In re Badger Lines, Inc., 224 Wis. 2d 646, 590 N.W.2d 270 (1999)—that a judgment creditor need not take any additional steps to perfect a so-called receiver’s lien beyond serving the debtor. Badger Lines seemed to some observers at the time to represent a faulty policy choice by the court, in favor of the creation of overbroad secret liens. That had been the conclusion of Bankruptcy Judge James Shapiro in a scholarly analysis reported at 199 B.R. 934 (Bankr. E.D. Wis. 1996) that the Supreme Court rejected in answering a certified question from the Seventh Circuit. But the 1999 decision recorded no dissent.

All that has changed with the Supreme Court’s latest foray into the subject last week, in Associated Bank N.A. v. Collier, 2014 WI 62.

Though Chief Justice Abrahamson’s dissenting characterization of Collier as “blithely” overturning “150 years of Wisconsin jurisprudence” seems a bit over the top, Justice Roggensack’s opinion for the court has effectively overruled Badger Lines, without acknowledging the fact. Collier held that serving an order for supplemental proceedings on the judgment debtor does not give rise to a lien on any of the debtor’s personal property. Rather, to obtain priority over other creditors, a judgment creditor must (1) docket its money judgment; (2) identify specific, non-exempt personal property (presumably by using the opportunity to examine the debtor under oath in the supplemental proceedings); and (3) levy on the specific property it has identified.

Hereafter, merely serving an order to appear for supplemental proceedings will no longer create a common law lien on the debtor’s personal property. Nor will such an order give a judgment creditor an interest superior to those of other secured creditors. The court adopted a preference for diligence (and disapproval for blanket liens that remove incentives for judgment creditors to locate and levy on a debtor’s personal property), noting that “[t]he law justly rewards the diligent creditor who by his timely efforts succeeds in discovering assets of the debtor which are inequitably withheld from his creditors.” 2014 WI 62, ¶ 48.

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Topics:  Debt Collection, Debtors, Judgment Creditors, Liens, Personal Property, Supplemental Examination

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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