Enforcing Judgments Via Restraining Notices

One of the most powerful tools in a judgment creditor’s arsenal is the restraining notice. A restraining notice requires the party served to freeze any assets in its possession that belong or are owed to the debtor, and can be extremely effective when served to the debtor’s banks or other financial institutions, as well as the debtor’s clients, customers, and anyone else who has money belonging to the debtor.

The restraining notice requires the party served to restrain up to double the amount of the judgment, and prohibits the party from distributing those assets to the debtor or to anyone else. If the party served violates the restraining notice by subsequently distributing the debtor’s assets, then that party can be held liable to the creditor for any dispersed amounts, and can also be found to be in contempt of court and ordered to pay fines or subjected to other forms of relief for violating the subpoena with which the restraining notice was served. To give an example of how a restraining notice works, suppose a creditor has a judgment for $20,000 and sends a restraining notice to the debtor’s bank where it turns out, the debtor has a checking account with a balance of $50,000. Upon receipt of the restraining notice, the bank is required to restrain $40,000, double the amount of the judgment, which will remain frozen until the matter is resolved. Once the creditor has restrained the debtor’s account, the creditor can either: (a) commence a turnover proceeding to obtain a court order requiring the bank to distribute the debtor’s assets to the creditor, up to the amount of the judgment, or (b) submit a property execution to the Sheriff or Marshal, who may then extract the funds directly from the debtor’s account and distribute them to the creditor.

One major limitation of restraining notices is that, in many cases, they are only effective as of the date received by the third party. If the party served with a restraining notice is not in possession of the debtor’s assets at the time it receives the notice, and does not presently owe any money to the debtor, then the restraining notice captures nothing and is immediately released. For example, let’s say that the debtor is a landlord and the creditor serves a restraining notice on the landlord’s tenant. The restraining notice would only be effective on the date it was received by the tenant. If the tenant owed rent, then the rent payment would be restrained and the tenant would be required to withhold the rent from the landlord. However, if the tenant’s rent was current at the time the restraining notice was served, then the tenant would have no obligation to withhold any rent from the landlord. In such situations, other methods, such as appointing a receiver, may be more effective than serving a restraining notice.

As long as the third party is holding some assets of the debtor at the time the restraining notice is served, then the restraining notice remains effective and will apply not only to the assets in the party’s possession at the time the restraining notice is served, but also to any additional assets that subsequently come into that party’s possession that belong to the debtor. The most common example is a bank, which maintains possession of its customers’ assets for long periods of time and is more likely to be holding the debtor’s assets at any given moment. If the debtor’s bank account has a balance of at least $2,750.00 (the minimum balance required for a restraining notice to take effect) at the time the restraining notice is served, then the restraining notice will remain in place until the matter is resolved and will capture any additional funds deposited into the debtor’s accounts.

A restraining notice is effective for up to one year when served on third parties and is effective indefinitely when served on the debtor. If you have questions regarding restraining notices, please contact our office.