Collecting a Debt Across State Lines – What Businesses Need to Know

While it’s not a new phenomenon, debtors are increasingly moving out of state to avoid liability, lawsuits, and collection agencies...

While it’s not a new phenomenon, debtors are increasingly moving out of state to avoid liability, lawsuits, and collection agencies. The process can be frustrating for businesses seeking to collect a debt; however, it is important to understand that you do have legal recourse.

Full Faith and Credit Clause

To start, debtors can’t simply escape a debt my moving their business or their assets. After you have successfully obtained a judgment against a party that owes you money, you can enforce that judgment in another state where the party has assets. Under the Constitution’s Full Faith and Credit Clause, states within the United States have to respect the “public acts, records, and judicial proceedings of every other state.” That means that courts must honor the decisions and rulings of other courts in different states. 

After you have successfully obtained a judgment against a party that owes you money, you can enforce that judgment in another state where the party has assets. However, to do so, you will need to jump through a few legal hoops. The process, which is often referred to as “domesticating” a judgment, may depend on where the assets are located. 

Unified Enforcement of Foreign Judgments Act

To facilitate this process, most states have adopted the Unified Enforcement of Foreign Judgments Act (UEFJA). A total of 47 states, as well as the District of Columbia, follow the UEFJA. New Jersey, New York, Pennsylvania and Delaware are all on the list.

Under the UEFJA, you can enforce your judgment by filing it in the county in which the court would have jurisdiction over the debtor. For instance, if a New York company wants to enforce a judgment in New Jersey, it must comply with N.J.S.A. , the state statute codifying the UEFJA. It permits a judgment, decree, or order of the United States or of any other Court which is entitled to full faith and credit in this State to be filed with the Clerk of the Superior Court of New Jersey. Pursuant to Enron (Thrace) Exploration & Production v. Clapp, 378 N.J.Super. 8 (App. Div. 2005), foreign country money judgments are enforceable in the same manner as the judgment of a sister state which is entitled to full faith and credit, provided that the provisions of the Uniform Foreign Country Money Judgments Recognition Act, N.J.S.A. 2A:49A- 16 to 24, are met.

In New Jersey, the process of domesticating a foreign judgment involves the following steps:

• Obtain an authenticated copy of the foreign judgment with the seal of the issuing court affixed thereto.
• Attach an affidavit from the judgment creditor or the judgment creditor’s lawyer. The affidavit must set forth: the name and last known address of the creditor; the name and last known address of the debtor; the date and amount of the judgment; whether the time to appeal the foreign judgment has expired in the court of origin; whether the court of origin has granted a stay; and whether or not the foreign judgment was entered by default. If the foreign judgment was entered by default, the affidavit must indicate the date under the rules of the court of origin for vacating the default with a copy of the cited court rule.
• Mail or deliver to the foreign judgment, affidavit, and filing fee to New Jersey Superior Court’s Office.

Once the debtor has been served, the debtor has 14 days to respond and seek relief from the judgment. In some cases, the debtor may fail to respond to the court filing. Even if they do, they can’t reargue the whole case again. Rather, the debtor may only raise certain procedural issues, such whether the judgment has been satisfied or whether the Notice of Foreign Judgment was filed in time. Once the judgment has been domesticated, you can attach the judgment as a lien to the debtor’s property and otherwise enforce it as if it was originally issued in that state.

Key Takeaway

If you are aware that a debtor has relocated or transferred assets to another state, it is imperative to domesticate the foreign judgment as soon as possible. Acting quickly helps ensure that your lien will have priority over other parties who may also be seeking to collect a debt. In addition, initiating the process of domesticating a judgment shows you mean business and may encourage the other party to settle the debt.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Howard Bader, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.