Court Procedures in Civil Cases Part 3

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Author’s Note:  The article below is a chapter or excerpt from the book “Law, Lawyers and Your Case:  A Dollars and Sense Examination”  (2003, Graduate Group*) by David Dixon Lentz,  Attorney at Law, Author.  Please also be sure to read the very important and limiting disclaimer at the end of this article.  It is being republished here because much, if not most, of it remains valid and true today.  This article/blog which also appears in in www.reasonandbalance.com is subject to  Copyright 2021 and 2003.  David Dixon Lentz.  All Rights Reserved. .

[In an earlier blog on courts we describe what a “Court of Record” and a “Lower Court” is.   However:

If you live in Virginia, in the Commonwealth’s (that is, the state’s) court system, the Lower Courts are the General District Court and/or the Juvenile and Domestic Relations District Court. The Circuit Court is the Court of Record.  The Virginia Supreme Court and the Virginia Court of Appeals are appellate courts.  The United States District Court in the federal system is a Court of Record and the U.S. Fourth Circuit Court of Appeals (much like the United States Supreme Court) is an appellate Court.]

[* Unfortunately, the Graduate Group has gone out of business and therefore ceased publication of Law, Lawyers and Your Case.]]

[This article is only for very generalized informational purposes, a nationwide audience and is not intended to provide and does not provide particularized legal advice to anyone in a particular case.  In part, this is because this article may not cite current law in all jurisdictions.  All readers must consult a licensed lawyer in his/her state in order to obtain proper legal guidance.]

Part 3 of 3 parts

 

PROCEDURE IN CIVIL CASES (cont’d)

 The Rules of Evidence.

A discussion of the rules of evidence is beyond the scope of this book.  Suffice it to say that the only evidence that a court will consider in rendering a judgment is the admissible evidence.  Collecting and presenting admissible evidence can be time-consuming and therefore costly, particularly if a lot of witnesses or documents are involved.  This is also true if the witnesses or documents are widely dispersed in different locations or states.  In fact, if the admissible evidence is too costly to collect and present to a court it can affect the feasibility of instituting or defending a case.   Moreover, in some instances, admissible evidence simply cannot be found or it has perished.  For example, if there is only one witness to an event and he either dies or can’t be found then the party who would rely on that witness at trial may be out of luck.

 

There are two rules of evidence that are worth briefly mentioning because they affect the time and cost that will be involved in collecting admissible evidence. The first is the rule against hearsay testimony.  It applies in both civil and criminal cases.  Under the hearsay rule, only witnesses who were actually present and saw the events to which they will testify can give admissible testimony regarding those events.  Witnesses cannot generally testify about what they heard other people say about an incident if they did not see it themselves.  Moreover, even written documents and letters can constitute inadmissible hearsay under certain circumstances.

 

There, of course, several exceptions to the hearsay rule.  For example, the friend of a defendant who did not see the accident (which is the subject of the plaintiff’s suit) can testify that the defendant admitted to him in a separate conversation that he (the defendant) knew that the brakes on his car were faulty before the accident.  This is called an admission.  Moreover, a written contract that is the subject of a lawsuit is also admissible under an exception to the hearsay rule.  The point, however, is that a lawyer may have to search for additional witnesses if the only witnesses he has will give hearsay testimony.  Thus, the hearsay rule affects the search for admissible evidence.  Therefore, it can affect the cost and feasibility of a case.

 

Another rule that affects the cost of putting on evidence is the rule that prohibits opinion testimony by witnesses who are not experts on the subject on which they will testify.  While nonexperts can give opinion testimony about some matters, expert testimony is required on many subjects in order for one party or the other to prevail in a lawsuit.  Naturally, this is particularly true in medical matters and in any situation where there is a question about whether a person in any profession has adequately performed his duties when he rendered a service.  Many times expert testimony is also required where there is an alleged defect in any product, equipment or mechanical device.

 

Expert Witnesses.

 

As noted, it may be necessary for one party or the other to call upon an expert witness in order to prove his case.  For example, it is unlikely that a plaintiff can win a medical malpractice case unless he can call a doctor as an expert witness to testify as to what the acceptable medical procedures in a community are and whether the defendant violated those procedures.  In the vast majority of situations a layperson simply isn’t qualified to render an opinion as to whether a doctor violated a standard of care for doctors.

 

In other cases, dentists, psychologists, chiropractors, physical therapists, engineers, physicists, chemists, architects, economists, accountants and other people, including those without advanced college degrees, may also be called as expert witnesses provided that they are shown to have sufficient expertise in the subject on which they will testify.  In this regard, expertise can be demonstrated through a witness’s education, training or practical experience as long as the court is confident that the witness is an expert capable of rendering an opinion on a subject that is relevant to the case.

 

The list of possible uses of experts is endless.  If, however, a lawyer deems it necessary to retain an expert in a case there are at least two immediate consequences.  The first consequence is that the costs of the litigation will increase.  This is due to the fact that the expert must be paid and the client is usually ethically responsible for paying him.  The second consequence, especially in cases in Courts of Record, is that it will generally lengthen the time it takes to get the case to trial.  There are a myriad of reasons for this including the fact that the lawyer has to hunt down and find someone who is willing to be an expert.  The lawyer then has to reach an agreement with the expert as to how much the expert is going to get paid.  Finding an expert is not always easy.   For example, sometimes doctors are not willing to testify against other doctors.  The difficulty in finding experts is not, however, limited to medical malpractice cases.

 

War Story:  Charla retained an attorney, Rufus, to handle her case.  Charla had a nasty accident involving a multi-speed bicycle that she purchased from a local bicycle store.  Charla brought the bike home and took it out for a test ride.  During the ride the chain derailed.  As a result, Charla lost control, fell, crushed her skull, broke her neck and suffered other serious and permanent injuries.  Rufus thought the case was worth millions of dollars, but he needed to find a bicycle mechanic and a design expert to testify that the bike had not been properly assembled or prepared for delivery to Charla.  This seemed like it would be an easy task.

 

After Rufus took the case, he made numerous telephone calls to find an expert who would be willing to testify.  Rufus also searched the Internet, lawyer trade publications and various other sources.  Despite his efforts, Rufus could not find anyone who was both willing and qualified to testify in the case except individuals who were located hundreds of miles away.  Realizing that this would greatly increase his expert witness fees, Rufus continued to look in his own state for an expert.

 

Finally, after a year of looking, Rufus gave up and hired an expert from a state over 500 miles away.  The expert charged Rufus $8,000 for his services, $4,000 of which was payable in advance.

 

One aspect of the cost of expert witnesses that is often overlooked involves situations where the opposing side has hired an expert to testify at trial.  Under these circumstances, clients have to decide whether to take the deposition of the opposing expert prior to trial so that the attorney knows what the opposing expert will say on the witness stand.  If an election is made to depose the opposing side’s expert, the fee charged by the expert for the deposition is borne by the party who requested the deposition not by the party who originally hired the expert to testify on his behalf at trial.  Again, this can be costly.  Thus, in a case where both sides hire an expert a client may find himself not only paying his own expert, but also of paying for the cost of the opposing expert if he wants to depose that expert prior to trial.

 

The Burden of Proof.

 

In order to prevail in a civil case the plaintiff must introduce sufficient evidence to satisfy his burden of proof.  In order to satisfy this burden, the plaintiff must ordinarily prove all of the elements of his case by a “preponderance of the evidence”.  This is a lesser burden of proof than the prosecution has in a criminal case (which is to prove guilt “beyond a reasonable doubt”).  A preponderance of the evidence is the greater weight of the evidence.  It is the evidence that is found to be more persuasive. Virginia Model Jury Instructions (Civil), Instruction No. 3.100.  (In a limited number of civil cases, however, the plaintiff has to prove his case by “clear and convincing evidence”.  Clear and convincing evidence is generally that amount of proof that will produce, in the mind of the trier of fact, a firm belief that the allegations of the plaintiff are correct. Virginia Model Jury Instructions  (Civil) 3.110.  Again this is a lesser standard than the standard of proof for criminal cases, but clear and convincing evidence is a higher standard than a preponderance of the evidence.)

 

For example, in a case where a plaintiff was injured by the negligence of the defendant, the plaintiff would have to prove, by a preponderance of the evidence, the following elements of a negligence case:

 

That the defendant owed a duty of ordinary care to the plaintiff;

That the defendant breached that duty;

That the defendant’s breach of duty proximately caused injury to the plaintiff; and

That the plaintiff suffered damages as a result.

 

In this regard, the requirement that the plaintiff prove his case by a preponderance of the evidence does not mean that the plaintiff has to prove his case to a scientific certainty.  It generally means that he has to put on a case that demonstrates that his allegations are more likely to be true than untrue.  Moreover, and perhaps, even more importantly, the “greater weight” of the evidence isn’t necessarily the same thing as having the most witnesses or the most documents.  The weight of the evidence goes more to its credibility and trustworthiness.  Thus, the quality of the evidence is often more important than the quantity of it.

 

 

 

 

Liability for Attorney’s Fees and Costs.

 

A vital issue that is often overlooked by clients is the question of whether the losing party in a lawsuit can be ordered to pay the legal fees and costs of the winning party.  In other words, will a losing defendant have to reimburse the plaintiff for the legal fees incurred by the plaintiff in bringing the case?  Alternatively, will a losing plaintiff have to reimburse a winning defendant for the legal fees and costs incurred by the defendant in defending the case?  Obviously, these fees and costs, which can include the opposing party’s expert witness fees and other costs, can be significant.

 

The rules vary from state to state.  The federal courts also have their own rules. Consequently, generalizations can be dangerous.  Traditionally, however, the rule has been that the losing party is not liable for the winning party’s attorney’s fees and costs unless a contract between the parties or a statute specifically provides otherwise.  In this regard, many statutes do allow the winning party to recover his attorney’s fees and costs from the losing party.  This is particularly true in many consumer protection cases.  Also, many contracts and promissory notes contain provisions that permit a winning party to recover his attorney’s fees and costs from the losing party.  In addition, attorney’s fees and costs are sometimes recoverable in particularly egregious tort cases, especially if fraud or an intentional wrong is committed.  Moreover, many statutes regulating divorce, alimony and support have provisions for the payment of the attorney’s fees of the party in need.

 

In short, it is imperative that you ask your lawyer about this issue at the earliest possible moment.  Unless you learn otherwise, you should assume that if you win your case that you cannot force the opposing party to pay your attorney’s fees or costs.  This does not mean, however, that you should not ask the court in your complaint or in your answer to be compensated for your attorney’s fees and costs in the event that you win.  After all, it never hurts to ask.  On the other hand, it is also imperative that you also determine whether you will be liable for paying the opposing party’s attorney’s fees and costs if you lose.

 

Law and Equity:  The Right to a Jury; Special Hearing Officers; and Remedies.

 

At this point, it is useful delve briefly into a rather arcane topic.  Historically, there was, and to a certain extent there continues to be, a distinction between “law” and “equity”.   This distinction is important because it has an effect on the remedies that are available to a successful plaintiff.  Whether a case would be historically labeled as an “action at law” or a suit  “in equity” is also often relevant for purposes of determining the consequences flowing from any final court order disposing of the case.  Moreover, the distinction between law and equity is also relevant for purposes of determining whether the parties have a right to a jury trial and whether the court will appoint a special hearing officer to hear the case.  Thus, while in most states and in the federal courts, the distinction between law and equity has become blurred over the years, understanding the distinction is helpful to understanding many of the procedural aspects of any contested lawsuit.

 

Initially, it is important to note that the discussion here is not about different courts—one legal and the other equitable. This is because the same courts often hear both legal and equitable cases.  The focus, instead, is on differences in remedies and procedure.

 

If the plaintiff is seeking money damages, the action is usually considered to be an “action at law”.  Actions at law typically involve personal injury cases, products liability cases, breach of contract cases and virtually any other case where money damages are sought.  Many cases in which the plaintiff is seeking damages for alleged violations of state and federal statutory law by the defendant are also actions at law.  (There are other types of cases in which the relief sought is not money damages that are nevertheless considered to be actions at law. They are relatively few in number, however, and will not be considered here.)

 

Suits in equity, on the other hand, typically involve cases where the plaintiff does not seek money damages.  Instead, cases in which the plaintiff has requested the court to order the defendant to do something or to determine the status of or the title to something are usually said to be suits “in equity”.  Examples of equity cases are divorce cases, spousal and child support cases, property settlement cases, suits to partition land, will and estate contests and suits in which the court is asked to issue an injunction requiring the defendant to do or not to do something, such as a suit to order a defendant to “specifically perform” his obligations under a contract.  For example, if a buyer sues a seller of real estate and requests the court to order the seller to specifically perform his agreement to convey good title to the real estate to the buyer the suit is said to be in equity.  This is because the buyer is requesting that the court order the seller to give him good title to the real estate.  If, however, the seller sues the buyer for failing to comply with the buyer’s agreement to purchase the property and the seller asks the court to grant him money damages for the difference between the contract price on the buyer’s contract and the contract price on a new contract with a different buyer (because the seller resold the property after the original buyer’s breach of contract) then the suit is an action at law.

 

This does not mean that all suits seeking monetary relief are actions at law.  For example, suits by the beneficiary of a will or a partner against an estate or a partnership to establish the right to proceeds of an estate or for an accounting of partnership profits are not actions at law.  They are said to be suits in equity.  Moreover, any suit that asks a court to order spousal or child support is normally said to be in equity and not an action at law.  (In fact, virtually every domestic case involving husbands, wives, children and live-in boyfriends and girlfriends is handled in a suit that is equitable in nature, that is, in equity.)

 

There are other distinctions between cases tried at law and cases tried in equity.  In actions at law heard before a Court of Record both the plaintiff and the defendant have a right to a jury trial even if the other party objects.  In other words, neither party can totally control whether the case will be heard by a jury because either party can elect to have a jury hear the case.  By contrast, and traditionally, suits in equity were not heard by a jury, but could only be heard by a judge.  Federal and state statutes have eroded this rule and increasingly the parties are given the option of having equity cases heard by a jury.   Nevertheless, the right to a jury trial in an equity case is always a nebulous issue and, even if a jury is permitted in an equity case, many times its verdicts are only advisory and not binding on the trial judge’s decision.  Jury verdicts in actions at law, on the other hand, are binding on the trial court unless they are totally unsupported by the law or the evidence.  Whether a jury verdict is binding in an equity case, however, often depends on the state or the court in which the case is filed.

 

Another important distinction between law and equity cases is that, unlike law cases, judges in equity cases have traditionally had the power to appoint an independent hearing officer, sometimes called a “commissioner”, to hear the case.  Many times, for example, this is done in contested divorce cases.  The hearing officer is usually another lawyer or a retired judge.  The hearing officer takes testimony under oath from the parties and witnesses (much like any other trial) and then submits a report of his findings and recommendations to the actual judge in the case.  While the judge normally accepts those findings and recommendations in rendering a decision, he can, in appropriate cases, disagree with those findings and recommendations.  In any event, independent hearing officers charge fees for their services.  These fees must be paid by the parties to the suit.  These fees can be significant and can sometimes drive up the cost of litigation for the parties.  Independent hearing officers such as commissioners are not, however, appointed in all equity cases.  Many times a judge will hear an equity case without appointing a commissioner.  The practice here varies from state to state even from locality to locality.  In any event, special hearing officers or commissioners are not usually appointed in actions at law.

 

Most of the time, the plaintiff who has a claim against the defendant has no choice whether to bring an action at law or a suit in equity because only certain relief is allowed under the circumstances.  For example, in cases involving personal injuries there is no equitable relief that is available.  The only relief that a court can grant to the injured plaintiff is money damages.  This is because there is nothing that a court can order that will restore an injured person to his prior health.  Most states do, however, permit plaintiffs, in appropriate cases, to file suit seeking both equitable and legal relief within the context of the same case.  For example, in a case involving a breach of a contract to sell real estate, a plaintiff (for example, the buyer) can request an order requiring the defendant (the seller) to specifically perform the contract (which is a claim for specific performance in equity), or a judgment for money damages (which is an action at law).   However, one element that often has to be shown before a court will grant equitable relief is a specific showing that a judgment for money damages would not be adequate to truly put the plaintiff in the position that he would have been in had the defendant not acted wrongfully.  Thus, if the court found that monetary damages would not fully compensate the plaintiff for the defendant’s breach, it might order the defendant to sell the property in question to the plaintiff.

 

Judgments, Orders and Decrees.

 

Once the court or a jury renders a decision in a case disposing of all matters relating to the merits of the case, the court will sign a final order, which is usually called a judgment or a decree.   A draft of the judgment or decree is usually prepared by the lawyer for the winning side and submitted to the lawyer for the losing side who normally endorses it “seen” or “seen and objected to”.  The order is then submitted to the judge for his signature.  Once the judgment or decree is signed by the judge, the “clock begins to run” with respect to the deadline for the filing of an appeal or a motion for a rehearing.

 

Naturally, any judgment or decree rendered in a case in favor of the defendant and dismissing the case means that the case is over and the defendant does not have to do or to pay anything except, perhaps, his own attorneys fees and litigation costs.  Moreover, as stated in the chapter that discusses courts, under the rule of res judicata, if the time for all appeals and rehearings has expired the plaintiff cannot thereafter sue the defendant again over matters involving the same incident.

 

In cases, however, where the plaintiff has successfully sued the defendant for money damages in an action at law, the order signed by the judge is normally called a judgment.  In such cases, a judgment against a defendant is essentially a legally enforceable determination that the defendant owes the plaintiff money.

 

Enforcing a Judgment: The Winning Plaintiff’s Collection Rights.

 

If, for whatever reason, the losing defendant (who is now a judgment debtor) does not pay the judgment, the winning plaintiff (who is now a judgment creditor) cannot, without starting another independent legal proceeding, start seizing the defendant’s property.  Moreover, the plaintiff cannot, without first starting another legal proceeding, seize, garnish or attach the defendant’s bank accounts or wages.  The point here is that judgments can only be enforced through separately filed creditors’ proceedings.  In other words, the judgment creditor must file another petition with the court to garnish, attach, seize or levy upon the judgment debtor’s property.   This is usually done by filing a petition for a writ of execution (sometimes called a writ of fieri facias), a writ of attachment or a garnishment petition. These petitions and writs usually command the sheriff to seize or attach the judgment debtor’s property or they demand that the garnishee (such as a bank or the judgment debtor’s employer) set aside or hold certain assets or moneys belonging to the judgment debtor for the benefit of or for the ultimate payment to the judgment creditor.  The judgment debtor is then given a short period to contest these collection activities on narrow exemption grounds. (For example, a certain portion of the judgment debtor’s wages is typically exempt from garnishment.)  The judgment debtor cannot, however, contest a garnishment, attachment or other post-judgment seizure on grounds relating to any defenses or other claims he made in the original lawsuit that gave rise to the original judgment.  If any assets that have been seized or garnished are not subject to any exemptions, they are either sold by the sheriff and the proceeds paid to the judgment creditor or, in the case of a garnishment, all moneys that are held by the garnishee are paid to the clerk of the court in question who, in turn, pays the judgment creditor.

 

In addition to the foregoing collection remedies, a judgment creditor is also allowed to place a “lien” upon the judgment debtor’s real estate by recording his judgment against real estate owned by the debtor.  This is normally done by recording the original judgment in the land records of the city or county where the debtor owns real estate.  In this regard, a “lien” is much like a mortgage.  If it is properly recorded or if it has been properly perfected on specific property that is owned by the debtor, the lienholder (in this case the judgment creditor) will be deemed to be much like a part owner of that property.  As such, that property cannot be sold or transferred by the debtor or by the debtor’s other creditors unless the lienholder is paid the amount of his claim (which, in the case of a judgment creditor, is the amount of the judgment).  This is true unless the debtor’s other creditors have prior or superior liens on that property in which case the lienholder may not get paid at all.   If a lien is placed on the debtor’s property and the debtor nevertheless refuses or cannot pay the lienholder, the lienholder can request the court (usually in a separately filed lawsuit) to order that the property be sold to satisfy the lienholder’s claim (which, in the case of a judgment creditor, is the judgment).

 

The collection rights of some persons, who are not required to obtain a judgment before they attempt to seize or place a lien on a debtor’s property, are discussed later in this chapter.

 

Enforcing Equitable Decrees and Orders.

 

The enforcement rights of a successful plaintiff in a case that was originally filed in equity or that is deemed to have been equitable in nature are significantly different than in cases that are deemed to have been originally filed at law.  In equity cases, the final action of any court is usually called a “decree” or a “final order” instead of a “judgment” (although the courts increasingly use all of these terms interchangeably).  Remember, many times, equitable decrees are decrees wherein the court has ordered the defendant to do or not to do something.  Thus, if the plaintiff in a suit in equity is successful and the court enters a final decree, the losing defendant must abide by the decree.  If the losing defendant does not do so, he may be held in contempt of court and could possibly go to jail.  By contrast, money judgments in actions at law are not enforceable through contempt proceedings and a judgment debtor cannot be sent to jail for non-payment of a money judgment.  This aspect of equitable decrees and orders provides a significant additional incentive for the defendant to comply with the court’s order.  Common examples of where contempt powers are particularly useful are cases in which a court has decreed that one party pay alimony or child support to another party.  If the party ordered to pay alimony or child support fails or refuses to do so he may be held in contempt and ordered to spend time in jail until the support is paid.  Similarly, if the losing defendant has had an injunction or a restraining order entered against him that prohibits him from visiting the premises of a former girlfriend, the defendant could go to jail if he ignores the order and visits the ex-girlfriend.

 

Finally, it should be noted that if any part of an equitable decree also gives the winning plaintiff a money judgment against the losing defendant, then the winning plaintiff has the same judgment enforcement rights as a judgment creditor in an action at law.  This, of course, includes the right to file petitions to garnish, attach or levy upon the losing defendant’s property in a separately filed creditor’s proceeding.  He may also be allowed to place a judgment lien on the losing defendant’s real estate.

 

The Collection Rights of Mortgagors and Other Secured Creditors.

 

An important point should be made here to avoid confusion as to creditor remedies.  As noted above, a person with a claim against another person cannot normally garnish, attach or seize that person’s property or assets without first going to court and obtaining a judgment legally establishing the amount of the claim. (As used here, the term “person” or “people” includes businesses and governmental entities.)   Once a money judgment is obtained by a winning plaintiff, he becomes a judgment creditor.

 

Thus, for example, persons who have breach of contract, personal injury, products liability or medical malpractice claims against other people cannot start seizing the property and assets of the other people unless and until they first obtain a judgment against them.  The same thing holds true for most credit card companies and for people who claim that they have not been paid for providing goods or services to other people.  In fact, this rule holds true for all people who have claims against other people unless the person with the claim is a “secured creditor” of the type described below.  In other words, under most circumstances, in order for a person to be able to seize the property or assets of another person in order to satisfy a debt or a claim, the person with the claim must be a secured creditor of the type described below or a judgment creditor (and even then a judgment creditor must first initiate a separate creditor’s proceeding).  There are also other special creditors who hold statutory and other liens on a debtor’s property which are briefly described below who may have special collection rights.  (It should be noted that the term “secured creditor” is sometimes used by some lawyers so as to include not only secured creditors as described below, but also all judgment and statutory lienholders. It will not, however, be used in this broader sense in the discussion below.)

 

In any event, a “secured creditor” (as that term is used here) is a special kind of creditor who is owed money by the debtor; typically under a special kind of loan agreement.  Unlike other creditors (that is, people who have unadjudicated claims against another person), a secured creditor is not usually required to obtain a judgment against a debtor before he is allowed to seize his debtor’s  property.  An example of a secured creditor would be a lender that finances the purchase of a car and takes back a lien on the car.  In this situation, however, the borrower has contractually agreed (when he originally borrowed the money) to pledge specific collateral (in this case the car) as security for repayment of the loan.  Under the agreement, which is normally contained in a “security agreement”, the borrower agrees to allow the lender, if the borrower defaults on his loan, to repossess the collateral (in this case the vehicle) and sell it to repay the loan.  Thus, a secured creditor is allowed to repossess and sell the property that his debtor has pledged as collateral for his loan without first getting a judgment from a court allowing the repossession of the collateral.

 

In many states, lenders who hold mortgages or deeds of trust on the real estate of their borrowers are also “secured” creditors who do not have to go to court to obtain a judgment before they can seize or foreclose on the underlying real estate if the borrower defaults on his loan.  In other states, however, particularly those where lenders employ the use of mortgages instead of deeds of trust, lenders are required to go to court when they foreclose on the borrower’s real estate.  The foreclosure rights of mortgagees and holders of deeds of trust are often highly regulated by statute and thus the rules can vary from state to state.  See generally, 55 American Jurisprudence 2d, Mortgages, Sections 512 and 630.  Nevertheless, lenders who hold mortgages and deeds of trusts are, in essence, secured creditors because they have a lien or a property interest in the borrowers property by agreement with the borrower and, if they’ve perfected their mortgage or deed of trust by recording same, then they will have significant protection against the possibility of nonpayment if the borrower later tries to sell the property or if other creditors try to seize it without first paying the holder of the mortgage or the deed of trust.

 

There are, of course, other kinds of secured creditors who have liens on collateral other than vehicles and real estate.  In any event, the documents that normally indicate that a creditor is a secured creditor (and not an unsecured creditor) are documents that are labeled as “security agreements”, “mortgages”, “deeds of trust”, “pledge agreements”, “collateral agreements” and sometimes certain leases on equipment, vehicles and other items.  There are, of course, agreements with other names in which a security interest in collateral may be given and in which the creditor may become a secured creditor.  Usually these agreements will speak in terms of the creation of a “lien”, a “security interest”, a “pledge”, an “hypothecation” or a “trust” in favor of the creditor.  In any event, in most situations, the only thing that can stop a secured creditor from seizing the property or collateral that secures the repayment of his secured loan from his defaulting debtor is the filing of a bankruptcy case by the debtor (and even then this relief may, in some cases, only be temporary).

 

Given the foregoing, most creditors including most credit card companies, doctors, hospitals and lawyers are “unsecured” creditors who must first obtain a judgment before they can garnish, seize or levy upon any property owned by the debtor.  This is because the people that owe them money have not usually signed one of the security agreements listed above pledging any specific collateral to secure repayment of the debts that they are owed.

 

The rights of other creditors who hold liens are discussed below.  These are usually statutory lienholders who have many of the rights that secured creditors have.  In any event, clients are naturally well advised to seek the advice of a lawyer to determine their specific rights in any potential collection situation.

 

Contractor’s, Supplier’s and Mechanic’s Liens.

 

Most states allow contractors, subcontractors and suppliers of labor and materials on buildings, homes and real estate to file mechanic’s liens on the property on which they have done work if they have not been paid.  (This gives them a statutory lien against the property to secure payment of their claim and protects them in the event that the owner of the property attempts to resell the property without paying them.  It also protects them in the event that some other types of creditors later try to seize the property in order to have their claims paid).

 

What makes mechanic’s liens unique is that the persons who are able to file them can in many states do so before going to court and getting a judgment establishing the amount of the debt that is legally owed to them.  In order to be able to do this, however, a person with a mechanic’s lien claim must usually file it very soon after he has done his work (usually within 30 to 120 days, depending on the state).  If he does not file his mechanic’s lien in a timely manner, however, he loses his right to file the mechanic’s lien.  (He does not, however, lose his right to sue for a judgment in the normal fashion noted earlier in this chapter.)

 

Even if the mechanic’s lien is filed in a timely manner, however, the person filing the mechanic’s lien must usually also file a lawsuit (again within a fairly short period of time) to establish the validity of his lien and/or to sell the property that is subjected to the lien.  This is done to satisfy the debt that is owed to the holder of the mechanic’s lien.  In essence, mechanic’s lien laws are designed to give people who have done work or who have supplied materials to real estate priority over some other types of creditors of the owner who may file other judgments or liens on the property after the mechanic’s lienholder has done his work.   For this reason, construction lenders will usually not make disbursements on construction loans unless all contractors, subcontractors and suppliers who have done work, first sign “mechanic’s lien waivers” wherein they waive their rights to file mechanic’s liens.

 

Mechanic’s liens are usually filed in the land records of the court in the city or county where the work was done.

 

Statutory and Other Lienholders.

 

Other creditors are given the right to attach or record liens against a debtor’s property without first going to court and obtaining a judgment for the amount of the debt. The procedures and rules here can vary but some of the most typical are liens granted to governmental entities for accrued and unpaid real estate taxes and assessments.  Also, the federal and state governments are often allowed to file liens for back due income and other taxes after they have satisfied their own regulatory procedures for assessing taxes, levying and filing liens on the taxpayer’s property.   In addition, many times, condominium and homeowner’s associations are allowed to place liens on their members’ real estate if they do not pay their community assessments and association dues.  Landlords are also sometimes given liens on the tenant’s property (such as his furniture) that is located within the leased premises.  Sometimes even automobile mechanics are given possessory liens on the vehicles on which they perform repairs in order to secure payment for the repairs.  The list here can be long.

 

In any event, if these lienholders are not paid, their normal remedy is to sell the property on which they have the lien and to collect all or, hopefully, some portion of the proceeds therefrom.  If the lien is on real estate, these lienholders normally have to commence a legal proceeding to conduct a public sale of the real estate.  Under these circumstances, the debtor’s only remedies are to file suit showing that they have in fact paid the debt or that debt on which the lien is based is improper.  Alternatively, the debtor may be forced to file for bankruptcy protection which may or may not provide him with long term relief.

 

Again, a lawyer should be consulted to determine what the rights of any particular debtor and creditor are in any given situation.

 

Bankruptcy: A Special Case.

 

The Bankruptcy Code is complex and the advice of a lawyer should be sought anytime a client has a bankruptcy matter.   Moreover, attempts have been made from time to time to significantly alter the Bankruptcy Code.  Nevertheless, an attempt will be made below to provide some idea of how it works, especially in simpler cases.

 

A bankruptcy is commenced by the filing of a “petition” for bankruptcy relief in the United States Bankruptcy Court in the district where the debtor resides.  In bankruptcy cases, the debtor normally seeks to have his debts “discharged”.   If a debtor is discharged in bankruptcy from a particular debt it means that he is not required to repay it.  (See the discussion below, however, with respect to the repayment of “secured” debts.)

 

One way that a debtor can seek discharge of his debts is in a Chapter 7 “liquidation”.  In a Chapter 7 case, the debtor is not required to pay his creditors from his future income.  In a Chapter 7 case, only his “nonexempt” assets (that is, his nonexempt property), if any, are taken by the trustee and sold to pay creditors.  (Again, nonexempt assets are described more fully below.)  Alternatively, if the debtor files a Chapter 13 case, he can seek to obtain the Bankruptcy Court’s permission to pay all or a portion his debts from future income on payment terms that are more lenient than his regularly scheduled payments under a court-approved payment plan that may last for up to three years (sometimes, however, with the courts permission, a five year plan is permissible).  Chapter 11 normally involves business bankruptcies and a discussion of that chapter is beyond the scope of this book.  Chapter 13 is available for individuals who have regular income and whose secured and unsecured debts do not exceed certain limitations.  [In this regard, it should be noted that Congress has, from time to time, considered significant revisions to the Bankruptcy Code.  In fact, as this book is going to print, Congress is considering legislation that would require more individuals to file Chapter 13 cases (instead of Chapter 7 cases), particularly if they are able, based upon their income, to pay a portion of their debts.]

 

Under most circumstances, most or all of the debtor’s debts are discharged at the conclusion of the bankruptcy case.  This is true unless, of course, the bankruptcy case is dismissed prior to a final discharge because the debtor has failed to comply with the Bankruptcy Code or its procedures.  In this regard, bankruptcy is most effective at discharging unsecured debts, such as credit card bills, doctor bills and other loans and debts that are not secured by any collateral.  Some debts, however, are not dischargeable in bankruptcy regardless of whether they are secured or unsecured.  The prime examples of nondischargeable debts for which a debtor remains liable, even after bankruptcy, include many unpaid taxes, many student loans, fraudulently incurred debts, defalcation debts, debts not listed in the bankruptcy schedules, alimony, child support, fines, penalties and liabilities for willful or malicious injuries.  Debtors who have these types of nondischargeable debts, however, may find some advantage in seeking Chapter 13 protection because some of these types of debts are paid first under any approved bankruptcy repayment plan.

 

The various states and the federal government permit debtors to “exempt” certain property.  “Exempt” property is property that the debtor can keep, even after the bankruptcy.  The property that the debtor can exempt, and therefore keep, depends on the state where the debtor lives.  This is because federal law allows states to have exemptions that are different than those permitted under federal law.  Alternatively, states can elect to require the debtor to take the federal exemptions.  Some states have adopted the federal exemptions.  Under the federal exemptions, the debtor may, under 11 United States Code Section 522, exempt and therefore keep, $17,425 of equity in his residence, $2,775 of equity in a motor vehicle, $1,150 in jewelry and $9,300 in household goods, furnishings, goods, appliances and wearing apparel.  There are also other federal exemptions.  On the other hand, under some states’ laws, debtors are typically allowed to exempt, and therefore keep, furniture, appliances, clothing and many other personal possessions.  In addition, some states permit a monetary equivalent exemption (for example, $5,000, $7,500 or $10,000 depending on the state) which can be applied by the debtor so that he can exempt any property that he desires; provided that the values of the items that he exempts do not exceed the monetary equivalent exemption limitation.

 

Usually, any monetary equivalent exemption that a debtor has can, at the debtor’s option, be applied to any “equity” that the debtor has in any properties that he owns, including any properties that are subject to a secured loan such as a home or a motor vehicle that are secured by a mortgage or a lien on the property.  (In this regard, “equity” is the difference between the current fair market value of the property and the total outstanding balance or payoff on any debts that are secured by a mortgage or any other lien on the property.)   Many times, when a debtor applies his exemptions to property that is secured by a mortgage or other type of lien there is no remaining value in the property that will be available for the payment of the other creditors in the case.  This happens when the total outstanding debt due on any mortgage (or any other lien on the property) plus the amount of the debtor’s applicable exemption is equal to or greater than the fair market value of the property in question.   Under these circumstances, the trustee almost always elects not to seize the property and “abandons” it.  When this happens, as it often does, the debtor ends up keeping the property in question (provided that he ultimately brings his payments current on the underlying secured loan).  In any event, many times, if a husband and a wife file a joint bankruptcy, they can double their monetary equivalent exemptions.  As such, in many instances, debtors are able to keep their home and motor vehicles after the bankruptcy case is completed.  Moreover, and in any event, in cases where the exemptions are not sufficient to cover all of the property that the debtor wants to keep, his assets can sometimes be protected under a successful Chapter 13 plan.

 

As noted, certain debts, including mortgage debts and car loans secured by a lien are known as secured debts.  The creditor of a secured debt is called a secured creditor.  A debt is called a secured debt when the repayment of the debt is “secured” by collateral, such as a house or a car that has a mortgage or other lien on it.  Under normal circumstances (that is, if no bankruptcy case is pending), if the debtor doesn’t pay a secured creditor, the secured creditor can repossess or foreclose on the collateral.  A secured creditor, however, cannot repossess or foreclose on his collateral once a bankruptcy petition has been filed without the Bankruptcy Court’s permission.  Even then, a secured creditor can only repossess or foreclose on his collateral for limited specified reasons.  In this regard, the filing of a bankruptcy does not, in and of itself, put a debtor into default under these secured loans if the debtor is otherwise up to date on his payments as of the date he files his bankruptcy petition.  Even if a debtor is delinquent in the payment of a secured debt when he files his bankruptcy petition, however, the secured creditor cannot repossess his collateral without obtaining permission from the Bankruptcy Court.  For this reason, secured creditors often try to enter into “reaffirmation agreements” with the debtor.  Under these reaffirmation agreements, the debtor is permitted to keep the collateral provided that the debtor agrees to allow the debt to remain in force even after the bankruptcy.  The debtor is also usually required to bring all payments current and to keep them current.  Reaffirmed debts are not discharged in bankruptcy and a debtor should seriously consider whether it is in his best interests to enter into any reaffirmation agreement, particularly if the creditor is unsecured or if the value of the debtor’s property is far less than the amount of the outstanding lien on it.

 

After the bankruptcy case is concluded, all secured creditors who have a lien on the debtor’s property must be paid on time despite any generalized bankruptcy discharge, otherwise the debtor’s secured property may ultimately be repossessed.  This is true regardless of whether or not the debtor enters into a reaffirmation agreement with a secured creditor and regardless of whether or not the underlying secured debt was discharged in bankruptcy.  Thus, even if the debtor is able to keep his home and motor vehicles, he must still make payments on them if they are collateral for secured loans.  The main difference between a reaffirmed secured creditor and a secured creditor whose debt has not been reaffirmed is that, after the bankruptcy, a reaffirmed secured creditor can, in the event of nonpayment, obtain a “deficiency judgment” against the debtor if the collateral is repossessed and sold by the creditor but the sales proceeds are less than the overall debt owed to the secured creditor.  A secured creditor who has not entered into a reaffirmation agreement, however, cannot hold the debtor liable for any deficiency judgment and must merely accept the repossessed collateral in full satisfaction of the debt.

 

It is important to note that the filing of a bankruptcy petition “automatically stays” or prohibits virtually any creditor (including secured creditors) from taking or continuing any collection action against the debtor or the debtor’s property.  The automatic stay goes into effect, immediately and automatically, upon the filing of the bankruptcy petition at the beginning of the case.  Thus, a creditor is prohibited from making telephone calls to the debtor and from sending collection letters to him once the debtor files the bankruptcy petition.  Moreover, after the bankruptcy case has commenced, creditors must also immediately stop most repossessions, foreclosures, garnishments and lawsuits against the debtor or his property.  This is so that the bankruptcy trustee can determine what assets are available to be sold to satisfy creditors and to give the trustee time to administer the estate in an orderly fashion.

 

In cases where the debtor is seeking permission to pay his debts over time in a Chapter 13 case, the debtor is also given a short time to develop a permissible repayment plan.  In a Chapter 7 case, which is the type of bankruptcy case individuals most often file, there is no repayment plan.   Instead, the trustee in a Chapter 7 case must determine what, if any, property is available to be sold or liquidated to pay creditors.  The property that is available to be sold to satisfy those creditors consists of all of the debtor’s property except the property that the debtor has exempted as discussed above.  As noted, however, the debtor keeps his exempt property.  If it is possible for the debtor to apply an exemption to all of his property (which happens in many cases involving individual consumer debtors), there is no property for the trustee to sell for the benefit of creditors.  In these situations, the debtor is able to keep all of his property after the bankruptcy.  If, however, the debtor has more property or equity in his assets than he can protect through the application of his monetary equivalent and other exemptions, it is possible that the trustee will seize assets in an attempt to pay creditors to the extent that he can.  If the assets seized by the trustee are insufficient to repay creditors in full, the debtor is, nevertheless, discharged from all of his debts except those that are determined to be nondischargeable (as discussed above).  In situations where it appears likely that the debtor has nonexempt assets that will be seized by the trustee in a Chapter 7 case, debtors normally seek Chapter 13 relief in an attempt to keep all of their assets.  Under such circumstances, they must devise an acceptable repayment plan under Chapter 13.  Repayment plans under Chapter 13 do not necessarily require repayment of all creditors in full in order for the debtor to obtain a discharge.  Any client who wants to seek Chapter 13 relief should consult with a lawyer to determine the requirements of any Chapter 13 plan.

 

In most smaller bankruptcy cases filed by individuals, the bankrupt client will never actually appear in court, even though a bankruptcy petition is filed there.  Actual court appearances only occur if there are contested matters or adversarial proceedings to determine the dischargeability of some or all of the debtor’s debts.  In a typical individual bankruptcy case, the debtor will only have to appear at the “creditor’s meeting” (which is also known as the “Section 341 Meeting”) to be asked questions by the trustee appointed to administer the case.  Naturally, creditors may also attend the creditor’s meeting but they are not required to do so.  Interested creditors may also ask the debtor questions at the creditor’s meeting.

 

In some instances, however, the parties may disagree as to whether certain assets can be seized by creditors and/or whether certain debts are dischargeable.  In these instances, which are known as adversarial proceedings and contested matters, a hearing may be held in the Bankruptcy Court itself, at which the debtor will be required to appear and to testify.  These cases can be fairly simple or quite complex.  Bankruptcy Courts have their own sophisticated rules of procedure regarding the resolution of contested matters and adversarial proceedings.  A discussion of contested matters and adversarial proceedings is beyond the scope of this book.  Contested matters or adversarial proceedings do not, however, occur in most simple Chapter 7 cases involving individuals unless they have somehow committed some violation of the Code or defrauded creditors.

 

It is after the creditor’s meeting, in a Chapter 7 case, that the trustee sells any non-exempt assets that are available for the benefit of creditors.  As noted, however, in many Chapter 7 cases, there are no assets to for a trustee to administer (because the debtor has exempted all of them) and a discharge is granted relieving the debtor of future responsibility for paying his debts.  Alternatively, in a Chapter 13 case, the trustee merely collects that portion of the debtor’s income as is set forth in the approved plan and carries out the terms of the approved plan over the period of time for which it is in effect.

 

Upon receiving notice of the debtor’s bankruptcy case, any client who is a creditor (that is, any client who is owed money by the person filing the bankruptcy) should contact a lawyer to determine whether it is necessary to file a “proof of claim” or a “proof of interest” in order to protect his rights in a bankruptcy case.  Creditors are afforded certain protections in bankruptcy.  For example, a debtor must set forth all of his assets and liabilities on his bankruptcy schedules.  He must also state all of his income and expenses.  Moreover, the debtor may be denied a discharge if he’s transferred property with intent to defraud creditors.  A debtor may also be denied a discharge of his debts if he fails to respond to any material question or is guilty of perjury with respect to the case. (All of the bankruptcy schedules filed by the debtor are signed under oath and under penalty of perjury.)  Also, bankruptcy relief is usually not available to the debtor if he received a discharge in a bankruptcy case that was commenced within the six year period prior to the filing of his current case.  See 11 United States Code Section 727.  There are also other reasons why a debtor cannot obtain a discharge.

 

No-Fault Uncontested Divorces.

 

Uncontested divorce cases are cases where both parties want a divorce and applicable state law permits a “no-fault” divorce.  This is normally permissible after the parties have lived separate and apart for a certain period of time and have no intention of reconciliation.  The procedures here can vary from state to state and you should consult with a lawyer to determine what the applicable rules in your state are.  What follows is designed to provide the reader with a general idea as to what happens in a typical no-fault uncontested divorce case.  Again, state laws may vary.

 

It would not be unusual in uncontested no-fault divorce cases for one party to file a complaint seeking a divorce.  Naturally, this would require that the defendant be served with process (under one of the procedures discussed earlier in this chapter), unless applicable state procedure allows the defendant to “waive” service by signing appropriate documents indicating that he does not want to be served with legal process and that he agrees to submit to the jurisdiction of the court in question.  At that point, the defendant usually simply fails to file an answer in a timely manner.  This typically puts the defendant in technical default and in most cases would allow a court to enter a decree granting the plaintiff his or her requested relief (which, in this case, is a divorce.).  Nevertheless, many states discourage divorce and require that before any divorce decree is entered that the plaintiff provide other independent evidence that the parties have been separated for a sufficient period of time so as to allow the court to grant the divorce.  How this is done depends upon a state’s particular procedural law.  For example, a state may require that before the divorce is granted that the plaintiff, after notice to the defendant, either submit to a deposition (which often can be taken in written form) or make some other sworn statement under oath as to the period of time that the parties have been separated.  Some states may further require that an independent witness (other than the plaintiff or the defendant) also submit to such a deposition or make a similar sworn statement concerning the period of separation.  If these procedures are followed then, and only then, will the divorce decree be signed by the judge.  It is only when a final divorce decree is signed by the judge that the parties are actually divorced.

 

It is very important to note, however, that alimony, child support, child custody and property settlement are issues that are separate and apart from the issue of divorce.  If the parties don’t want the court to decide these issues then the complaint typically only requests a divorce and does not ask for any alimony, child custody, child support or property division.  If the complaint does not ask the court to resolve these issues then they may have to be litigated and decided by the court in a contested case at a later date. (This is one reason why an attorney should be consulted by both parties even in an uncontested divorce.)  Alternatively, the parties may never do anything about these issues and may thereafter just live separate lives.  Often, however, all of these support and property settlement issues are handled in a separation or property settlement agreement (which is a contract signed by both parties).  If a separation or property settlement agreement has been signed by both parties then typically, the plaintiff, in his or her complaint (in an uncontested divorce case) will ask the court to incorporate that agreement into the final divorce decree so that it becomes part of it.  (In which event, the agreement becomes enforceable through the court’s contempt powers as mentioned earlier.)  Great care, however, should typically be taken by the defendant in a no-fault divorce case to be sure that the plaintiff does not, in his complaint, request alimony, spousal support, child custody, child support, a division of property or other relief unless a separation or property settlement agreement has been signed by both parties and the plaintiff has requested in the complaint that that agreement be incorporated into the final divorce decree.  Otherwise, the defendant may find, if he doesn’t file an appropriate answer and contest these issues, that his property or children will be taken or that he will be forced to pay an unpleasant amount of support to his ex-spouse.

 

Even though the law of most states is such that fault grounds for divorce (such as adultery, cruelty and abandonment) are taken into account for purposes of determining alimony and the final division of property, many contested divorce cases turn into uncontested ones.  This is because many times both parties eventually come to the realization that their divorce is inevitable and that the standard of living of both parties will have to suffer as a result.  This is because it is mathematically impossible to run two households for the price of one.  In addition, they also realize that it is often difficult to prove “fault” grounds for a divorce and that a contested divorce often entails incurring attorney’s fees and costs that more than offset the advantages of trying to obtain a litigated final divorce on fault grounds under more favorable terms.  Moreover, many people also conclude that they will have to deal with one another after the divorce is over, especially if children are involved.  Thus, they often determine that it is better to negotiate a reasonable divorce and final settlement agreement in the hope of adding some element of constructiveness to their future relationship than to litigate the matter and thus fuel further bitterness.

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DISCLAIMER

 

The article above is an excerpt from the book “Law, Lawyers and Your Case: A Dollars and Sense Examination.” (LLYC)  Published by the Graduate Group in 2003.   The publisher is now out of business and the book is now out of print.

 

The article above is to provide the reader with only a very general legal framework or reference point—a mere “starting point” to permit the reader to engage in further analysis.  It is not the “final word” so to speak and is not designed to give anyone legal advice.  As such, the foregoing article MAY NOT be relied upon by anyone to resolve his/her/its legal matter. Readers must consult their own lawyer and/or take responsibility for doing their own independent legal research/representation beyond merely reviewing this article.

 

Please keep in mind that laws do change over time and that laws differ amongst the various states, territories, nations and locations. So the rules and laws stated herein may not apply to the reader.

 

Any similarities in names, descriptions or accounts of persons, entities or events is purely accidental and all person/characters, entities and events herein are fictional and not intended to depict or describe any actual person, event or circumstance.

 

Despite the passing of many years most of this book is still relevant today.  It is still helps very useful in terms of explaining the how legal problems get handled, the attorney-client relationship, trial and testifying and very importantly the general manner in which the legal system and the courts operate. Important concepts like discovery, summary judgment and a host of other terms are explained and defined.  Civil, criminal, family law, personal injury and a host of other types of cases are discussed in remarkable detail.

 

If you live in Virginia, in the Commonwealth’s (that is, the state’s) court system, the Lower Courts are the General District Court and/or the Juvenile and Domestic Relations District Court. The Circuit Court is the Court of Record.  The Virginia Supreme Court and the Virginia Court of Appeals are appellate courts.  The United States District Court in the federal system is a Court of Record and the U.S. Fourth Circuit Court of Appeals (much like the United States Supreme Court) is an appellate Court.

 

Dollar amounts for costs, expenses, attorney’s fees, damages etc etc are probably very different because this book was published in 2003 and costs and dollar figures can vary widely depending on the location of the legal matter.   This naturally would also include changes and new jurisdictional dollar limits for most cases before any given court.

 

There have been extensive changes to the Bankruptcy Code since LLYC was first published.  As such, any references to bankruptcy rules, laws and/or legal requirements could be out of date and/or incorrect.

 

Since the LLYC was written there have been changes in the way third party costs and expenses (such as for experts and court reporters etc) may be funded and/or paid for—often making it somewhat easier for the client and his/her lawyer to carry a plaintiff’s personal injury/product’s liability case.

 

If a client has been damaged or lost money because of the ethical violations of his/her lawyer (for example, if the lawyer has stolen or misappropriated funds from the client or the client’s escrow account) many state bar associations have established separate trust funds to reimburse clients for the wrongs of their lawyers.

 

With regard to “property law” matters, this book has been written largely from the perspective of someone living in a state with English “common law” origins (which is most of the United States).  However, folks who live in “community property” or “civil law” jurisdictions my have different rules regarding discussions pertaining to divorce property settlements, real estate law, inheritance and/or other property law matters.