Turnover Receivership: A Versatile Collection Tool
By Michael S. Bernstein
There is a good tool for collecting judgments that has been available since 1979, but surprisingly few attorneys know about it. Known as the “Turnover Statute,” Section 31.002 of the Texas Civil Practice & Remedies Code allows the court to appoint a receiver to seize and sell a judgment debtor’s non-exempt assets, including present or future rights to property. The statute was created to help seize assets that are easily hidden from a levying officer, such as stock certificates, and to help recover intangible assets, like accounts receivable.
Powers of a Turnover Receiver
Some of the things a receiver can do to help collect a judgment are: seize the defendant’s bank accounts; sell any transferable property right of the debtor (for example, a taxi permit); obtain information from third parties which may lead to asset information; levy on anticipated proceeds from a lawsuit; seize accounts receivable; take control of contract rights; search through the defendant’s office; obtain copies of tax returns; sell real property; and sell tangible personal property.
The traditional requirements we often think about when considering a receivership do not apply. You do not have to wait 30 days from the date of your judgment. You do not have to show that you have exhausted your remedies or that other methods of collecting the judgment have failed. You do not have to show that the property is in danger of being lost, or whether the debtor is insolvent. None of these factors apply to a turnover receivership.
The elements to prove up are that: the creditor has won its judgment; the defendant owns property that is non-exempt; and the property is not readily leviable by regular process (in other words, it is property that would be difficult for a constable to levy on.) That’s it. Once you prove the defendant has some assets of this kind, the door opens wide and all of the debtor’s non-exempt property can be placed into the receivership.
Consider all of the non-exempt, intangible types of property that you may be able to prove up: valuable contract rights, interests in a business, accounts receivable, a good domain name or telephone number, rents and stocks. Arguably, ownership of a bank account supports turnover relief because the statute requires a showing of property that “cannot readily be attached or levied on by ordinary legal process.” §31.002(a)(1). The usual way to seize a bank account is through a garnishment, which is an extraordinary remedy. Therefore, a bank account is property that “cannot readily be attached.”
The turnover order does not have to detail specific property. A laundry list type order is perfectly acceptable. Accordingly, the order could empower the receiver to seize and compel the debtor to turn over “all real estate” (except the homestead), “all bank accounts,” and so on. TCPRC §31.002(h).
Getting a Receiver Appointed
Getting a receiver appointed is motion practice. You may bring an application for turnover relief ex parte. An ex parte order does not unfairly surprise a judgment debtor because the judgment puts the defendant on notice that post-judgment collection proceedings will follow. The debtor has already had his day in court.
No bond is required for a turnover receiver. The idea of a receiver’s bond comes from pre-judgment receiverships where one party seeks to put another party’s business or property into receivership. The bond in a traditional receivership (Chapter 64, Texas Civil Practice & Remedies Code) protects the respondent from damages in a pre-judgment context. If the movant loses its case, the respondent would have been wrongfully placed into receivership. But a bond is not needed to protect a debtor from a wrongful receivership where the creditor has already won its judgment. The whole point is to liquidate the debtor’s assets.
Receivership is affordable on small cases as well as large ones. Most turnover receivers take their fee from what is collected. Because the turnover order will tax the fee as a cost against the defendant, the receiver can make your client whole by seizing enough property to also cover his fee.
The next time you gear up to do a garnishment, consider using a receiver. A receiver could levy on several accounts receivable or several banks. Without a receiver, you would have to do a separate garnishment for each one.
Turnover receivership has been available to creditors since 1979. It is a powerful, flexible collection tool that could be a regular part of your arsenal.
Mike Bernstein is a solo attorney and full-time receiver in Garland. He can be reached at email@example.com.