Creditor’s Bill to Subject: Little Used Remedy for Collections When the Chain is Broken

Broken-chainOftentimes a judgment creditor seems to reach the limits of available collection remedies when an execution is returned as “unsatisfied.”  In most creditors’ minds, such a return means that there simply aren’t any assets sufficient to apply towards the outstanding judgment.  As a result, most will simply wait a period of time before trying again or give up.  Like most states, Tennessee has a remedy that permits a creditor to “dig deeper” into a debtor’s assets and financial history.  It is commonly called a “creditor’s bill to subject,” and it can be found at Tenn. Code Ann. § 26-4-101.

A complaint for a creditor’s bill to subject is an equitable remedy that can only be granted by a court once it is established that a debtor’s property sought to satisfy the judgment cannot be reached by ordinary process, is insufficient or is not subject to levy and sale by execution at law.  Hutchins v. Wilson, 210 S.W. 155 (1918); Tenn. Code Ann. § 26-4-101.  A creditor’s bill to subject is necessary to preserve a judgment lien if a nulla bona return has been received or an execution has been made upon a debtor’s property but it is insufficient to satisfy the judgment in its entirety.

When pleading, it is essential that the creditor establish that the execution issued by the creditor has been returned as unsatisfied “in whole or in part.” Tenn. Code Ann. § 26-4-101; Stahlman v. Watson, 39 S.W. 1055 (Tenn. Ct. App. 1897)(holding that disclosure of basic information of the underlying judgment in the creditor’s bill must be sufficient to establish the right for maintaining such an action).  Most creditors miss this crucial step.  They forget that a nulla bona return or some such similar return (even a return stating that no such account can be found) qualifies as grounds for a creditor’s bill to subject.  Upon receipt of such a return, a creditor only has thirty (30) days to commence such an action to aid in its recovery and protect its judgment lien.

Conversely, if the asset(s) or property of the judgment debtor can be reached at law, then a creditor’s bill cannot be maintained unless the creditor seeks additional discovery to locate the judgment debtor’s property or assets to aid it in satisfying the judgment.  Jennings, Neff & Co. v. Crystal Ice Co., 159 S.W. 1088 (1913).  Thus, we see that not only can a creditor’s bill be used to actually subject and execute on a debtor’s property, but aid in discovering additional assets that can be liquidated to satisfy the judgment.  It is therefore paramount that a creditor clearly establish the reasons why a creditor’s bill is being sought.

After establishing the facts and circumstances surrounding the application for a creditor’s bill, the creditor may then seek an order from the court aiding it in discovering “any property, including stocks,” protecting the judgment lien itself, and subjecting the debtor’s property to the satisfaction of the judgment.  Id.; Tenn. Code Ann. § 26-4-102.  Included within the court’s broad equitable powers is the power to order a lien lis pendens “upon the property of the [debtor] situated in the county of the suit” or the power to order that property be sold to satisfy the judgment.  Jennings, Neff & Co., 159 S.W. 1088; Tenn. Code Ann. § 26-4-104; Cannon Mills, Inc. v. Spivey, 346 S.W.2d 266 (1961)(Lien is fixed at the time of filing the bill).

When filing a creditor’s bill to subject, the creditor must also decide where to file the lawsuit.  If the creditor is mainly seeking discovery to aid it in its collection efforts, then the action can be commenced in any court of general jurisdiction. Tenn. Code Ann. § 26-4-101.  If, however, the creditor seeks to subject (and have sold by court order) property of the debtor “which cannot be reached by [ordinary] execution,” then the action must be commenced in chancery court. Tenn. Code Ann. § 16-11-104.

The advantage of commencing a creditor’s bill to subject, beyond the obvious need to protect the judgment lien, is that a creditor is able to conduct an in-depth examination of the debtor or any other third-parties that may have assets or knowledge of assets belonging to the debtor.  Such an examination is conducted in court before the presiding judge.  The court is also able to issue “power of sale” orders on the spot, which circumvents the traditional applications made to the court through the clerk’s office.  The main detriment to commencing such an action is the cost involved since this is a separate lawsuit, and the normal service requirements and filing fees must be followed/paid.

Counting the costs in the collection phase of litigation is of paramount importance so creditors should weigh the potential costs and benefits before commencing a creditor’s bill to subject.  It is an extremely useful tool when used properly, and should be remembered when the first nulla bona return is issued.

For more information about this topic or any other topics related to creditor’s rights, please contact Ronn Steen.  He can be reached either by email at [email protected] or by telephone at (615) 465-6010.