Using Liens to Collect Past-Due Child Support by cnu54265

VIEWS: 284 PAGES: 19

									NC Child Support Council Conference                                                         John L. Saxon
August 18, 2005                                                  Institute of Government, UNC-Chapel Hill



                     Using Liens to Collect Past-Due Child Support

I.    Definitions
     A. Lien
        •   A lien is a legal right or interest of a creditor in the property of a debtor (or another
            person) that secures the payment of a debt owed to the creditor by encumbering the
            debtor’s (or other person’s) property. A lien generally is enforced through the seizure
            and sale of the property to satisfy the debt.
     B. Attachment
        •   A lien attaches to property when (a) the debtor (or other person) has a legal right or
            interest in the property and (b) the creditor obtains a legal right or interest in the
            property by agreement, statute, judgment, etc.
     C. Perfection
        •   A lien is perfected in property when it attaches to the property and the creditor has
            taken all legal steps necessary (usually by filing or recording the lien or taking
            possession of the property) so that it is valid as against third parties (co-owners, other
            creditors or lien-holders, transferees, etc.) as well as against the debtor or owner of
            the property.
     D. Priority
        1. The priority of a lien is its rank or status in relation to other liens against the same
           property. A lien that has a higher priority than other liens is a “senior” lien in relation
           to the other liens (which are “junior” in relation to the “senior” lien).
        2. A lien’s priority is usually, but not always, determined by the date it is perfected.
           Certain types of liens have priority over other liens regardless of the date they are
           perfected.
            a) Child support liens are not entitled to priority over previously-perfected liens on
               the same property.
            b) Previously-perfected child support liens are subordinate to subsequent liens for
               property taxes.
            c) Child support liens on insurance benefits under G.S. 58-3-185 are subordinate to
               claims of health care providers.
     E. Enforcement, Execution, or Foreclosure of a Lien
        1. A lien generally is enforced by attaching or seizing the property (if the lien is a
           nonpossessory lien), selling the property, and using the proceeds of the sale to satisfy
           the debt and to pay the expenses of enforcing the lien.
        2. If there are senior liens, the property remains subject to those liens after a junior lien
           is foreclosed.



                                                  1
NC Child Support Council Conference                                                         John L. Saxon
August 18, 2005                                                  Institute of Government, UNC-Chapel Hill

        3. If there are junior liens, the debts owed to the junior lien-holders will be paid in
           whole or in part in priority order if the proceeds exceed the amount of the senior lien
           and expenses of enforcing the senior lien.
    F. Discharge or Extinguishment of Lien
        1. A lien generally is discharged when the creditor relinquishes his or her legal rights or
           interest under the lien, usually upon the debtor’s repayment of the debt.
        2. A junior lien is extinguished if the property is sold to satisfy a senior lien.
        3. The sale or transfer by the debtor of property that is the subject of a perfected lien
           does not extinguish the lien, which can be enforced against the property in the hands
           of the purchaser or transferee.
    G. Judicial Lien
        •   A judicial lien is a lien that is obtained through judicial action, such as the docketing
            of a judgment against the debtor, levy on the debtor’s property, or attachment through
            other legal process.
    H. Judgment Lien
        •   A judgment lien is a lien that is obtained through the docketing of a judgment against
            the debtor, giving the creditor the right to attach or seize the debtor’s property
            through execution.
    I. Execution Lien
        •   An execution lien is a lien that results from the levy or seizure of property under a
            writ of execution issued to enforce a judgment against the debtor.
    J. Garnishment Lien
        •   A garnishment lien is a lien that results from the service of a notice of attachment or
            garnishment on a garnishee. A garnishee is a person or entity that is indebted to a
            judgment debtor (for example, an employer that owes wages to the judgment debtor
            or a bank in which the judgment debtor holds a time-deposit account) or that holds
            tangible or intangible property in which the judgment debtor has a legal interest.
    K. Statutory Lien
        •   A statutory lien is a lien that arises solely by operation of statutory law rather than
            judicial action or individual consent, agreement, or contract.
    L. Consensual Lien
        •   A consensual lien is a lien that arises through individual consent, agreement, or
            contract rather than by operation of statutory law or judicial action. A mortgage on
            real property or security interest in an automobile to secure repayment of a bank loan
            is a consensual lien.
    M. Nonpossessory Lien
        •   A nonpossessory lien is a lien that attaches to property in the possession of the debtor
            or property owner, rather than the creditor.


                                                   2
NC Child Support Council Conference                                                         John L. Saxon
August 18, 2005                                                  Institute of Government, UNC-Chapel Hill

    N. Possessory Lien
        •   A possessory lien is a lien under which the creditor takes or retains possession of the
            debtor’s property to guarantee payment of the debt.
    O. Exempt Property
        1. Exempt property is property that is not subject, under federal or state law, to a judicial
           or statutory lien or protected from attachment, seizure, execution, or similar legal
           process.
        2. Exempt property is property that may be retained in a bankruptcy proceeding by a
           debtor free and clear of the claims of most creditors.
    P. Lien Avoidance
        •   Avoidance is the procedure in a bankruptcy proceeding through which a debtor (or
            the bankruptcy trustee) may remove a lien on the debtor’s exempt property or
            property of the bankruptcy estate.
II. Judgment for Past-Due Child Support
    A. Judgment, Lien, and Execution (G.S. 50-13.4(f)(8) and (10))
        1. Except as noted below, a court order requiring an obligor to make periodic payments
           of child support may not be docketed as a judgment lien against the debtor’s real
           property unless (a) the order expressly provides that it will constitute a lien, (b) states
           the amount of the lien as a sum certain, and (c) adequately describes the real property
           that is subject to the lien.
        2. Upon motion by the obligee, past-due child support owed under a court order may be
           “reduced to judgment.”
            a) The obligor must be given at least ten days’ notice of the motion.
            b) Although the obligee must prove that the obligor owes past-due child support, the
               obligee is not required to prove that the obligor’s failure to pay child support was
               willful, that the obligor is “delinquent,” or that the obligor owes some specific,
               minimum amount of past-due child support. Bogan v. Bogan, 134 N.C. App. 176,
               516 S.E.2d 641 (1999).
            c) The obligor may raise the statute of limitations as a defense with respect to child
               support payments that accrued more than ten years before the motion to reduce
               the child support arrears to judgment. (A longer statute of limitations may apply
               with respect to child support arrearages owed under an out-of-state child support
               order that is registered in North Carolina under UIFSA.)
            d) An unsatisfied judgment for child support arrearages may be “renewed” once for
               an additional ten-year period if the judgment creditor files a civil action on the
               judgment within ten years of the date the original judgment was entered. G.S. 1-
               47(1).
        3. A judgment for child support arrearages is enforced against the debtor’s property
           through issuance of a writ of execution and sale of the debtor’s property attached
           pursuant to the writ of execution (see below).


                                                  3
NC Child Support Council Conference                                                         John L. Saxon
August 18, 2005                                                  Institute of Government, UNC-Chapel Hill

    B. Judgment Lien on Obligor’s Real Property
        1. When docketed, a judgment for child support arrearages under G.S. 50-13.4(f)(8)
           becomes a lien against the debtor’s interest in real property located (a) in the county
           in which the judgment was entered, and (b) in any county to which a transcript of
           judgment (AOC-CV-403) has been issued. G.S. 1-234.
        2. A judgment for child support arrearages must be docketed promptly and indexed by
           the clerk of superior court when the judgment is entered (see Rule 58) or when a
           transcript of judgment is received from the county in which the judgment was
           entered.
        3. Docketing and indexing of the judgment by the clerk of superior court perfects the
           judgment lien.
            a) A judgment lien generally is junior to prior, perfected liens (judicial, statutory,
               and consensual) on the property and senior to subsequent liens on the property.
            b) For example, a judgment lien for child support arrearages properly docketed and
               indexed on July 1, 2005 is junior to a mortgage lien recorded on May 1, 2005, but
               senior to the bank’s rights under a home equity mortgage recorded on August 1,
               2005.
        4. A judgment lien attaches to any interest of the debtor in real property (other than as
           joint tenant by the entireties) (a) held by the debtor at the time the judgment is
           docketed or (b) acquired by the debtor within ten years after the judgment is entered
           (or, in the case of judgments entered before September 1, 2003, within ten years after
           the rendition of judgment).
        5. A judgment does not constitute a lien against real property located outside of North
           Carolina (unless the judgment is properly registered in the other state).
        6. A judgment lien is enforced against a judgment debtor’s real property through levy
           and sale pursuant to a writ of execution (see below).
    C. Execution Lien on Obligor’s Personal Property
        1. A docketed judgment does not, in and of itself, constitute a lien against the debtor’s
           personal property (for example, mobile home, automobile, household goods, bank
           accounts, etc.).
        2. A judgment creditor obtains an execution lien on a judgment debtor’s personal
           property when the property is levied upon by the sheriff pursuant to a writ of
           execution issued to enforce the judgment (see below).
    D. Writ of Execution
        1. The clerk of superior court in the county in which the judgment is entered must issue
           a writ of execution upon request by the judgment creditor.
            •   A writ of execution is void if it is issued by the clerk of superior court in a county
                in which a judgment has been docketed pursuant to a transcript of judgment from
                the county in which the judgment was entered.




                                                  4
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill

        2. The writ of execution may be directed (a) to the sheriff of the county in which the
           judgment was entered or (b) to the sheriff in any county in which the judgment has
           been docketed.
            •   The clerk may issue multiple writs of execution to the sheriffs of several counties
                if the judgment has been docketed in each county.
        3. A writ of execution may not be issued until the time for appealing the judgment has
           expired (in child support cases, thirty days after entry of judgment).
            •   If the obligor appeals the judgment, execution is not stayed pending the appeal
                unless the obligor posts a bond pursuant to G.S. 1-289.
        4. A writ of execution may not be issued more than ten years after the entry of
           judgment.
        5. In general, the sheriff must return the writ of execution to the clerk who issued the
           writ no later than 90 days after the writ was issued.
        6. The sheriff must use due diligence in discovering what property the debtor owns in
           the county (but judgment creditors should advise the sheriff regarding existence and
           location of debtor’s property if known).
        7. A judgment debtor’s real property may not be seized and sold to satisfy a judgment
           unless the debtor’s personal property is insufficient to satisfy the debt. G.S. 1-313(1).
        8. Tangible personal property owned by and in the possession of the judgment debtor is
           subject to levy under a writ of execution, as are money, money orders, promissory
           notes, checks, and stock certificates in the hands of the judgment debtor.
            a) Bank accounts held in the name of the judgment debtor are not subject to levy
               under a writ of execution but may be garnished through supplemental proceedings
               (G.S. 1, Art. 31), attached pursuant to G.S. 110-139.2(b1), or paid pursuant to
               G.S. 1-359.
            b) Property owned by the judgment debtor but in the possession of third parties is
               not subject to levy under a writ of execution but may be attached through
               supplemental proceedings.
            c) Debts owed by a third party to the judgment debtor (unless represented by an
               indispensable instrument such as a promissory note) are not subject to levy under
               a writ of execution but may be garnished through supplemental proceedings.
            d) A mobile home that is owned by a judgment debtor and the judgment debtor’s
               spouse as tenants by the entireties is not subject, under state law, to levy under a
               writ of execution unless the judgment is owed jointly by the judgment debtor and
               the judgment debtor’s spouse.
        9. To levy on personal property, the sheriff must seize the property and put it under his
           or her control. The judgment or execution lien attaches when the sheriff seizes the
           property.
        10. To levy on real property, the sheriff notes on the execution return that he is levying
            on the real property.


                                                  5
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill

    E. Execution Sales
        1. After the sheriff attaches a judgment debtor’s real or personal property pursuant to a
           writ of execution, the property is sold by the sheriff at public auction pursuant to G.S.
           1-339.41 et seq.
        2. The judgment creditor is responsible for paying the sheriff’s fees, commission (5% of
           the first $500 and 2.5% of the remainder), and expenses of execution and sale. If a
           judgment creditor accepts payment after a writ of execution has been issued, the
           judgment creditor is personally liable for these costs.
            •   State and county child support enforcement agencies are not required to pay in
                advance the fees and costs for executing a judgment for child support arrearages
                against an obligor’s property (see G.S. 7A-317 and G.S. 138-2) but are
                responsible for payment of any fees, commissions, and expenses not recovered
                through sale of the property.
        3. If a motor vehicle is being sold, the sheriff must send a notice of sale to the state
           Division of Motor Vehicles and receive an authorization of sale from DMV (the
           process usually takes about two months).
        4. If real property is being sold, the sale must be advertised in a newspaper of general
           circulation in the county once a week for four successive weeks.
        5. After the property is sold, the sheriff pays the proceeds (minus the sheriff’s fees,
           commissions, and expenses) to the clerk of superior court to satisfy the judgment.
            a) Real and personal property sold at an execution sale is sold subject to all senior
               liens and encumbrances. Senior lien-holders are not entitled to be paid from the
               proceeds of the sale.
            b) Junior liens are extinguished, but junior lien-holders claims will be paid (in order
               of priority, not pro rata) from the proceeds of the sale if the proceeds exceed the
               amount of fees and costs related to the sale and the amount of the judgment that is
               being enforced through the execution sale.
    F. Supplemental Proceedings
        1. A supplemental proceeding (G.S. 1-352 et seq.) is a means of enforcing a money
           judgment when the judgment creditor has been unable to satisfy the judgment through
           a writ of execution.
        2. Supplemental proceedings to enforce a money judgment include:
            a) Procedures to discover assets by examining the judgment debtor (G.S. 1-352).
            b) Procedures to discover assets by serving interrogatories or requests for production
               of documents or entry on land on the judgment debtor (or certain third parties)
               (G.S. 1-352.1, 1-352.2).
            c) Injunctions forbidding disposition of property by the judgment debtor or a party
               (G.S. 1-358).
            d) Orders requiring the judgment debtor to turn over property that is subject to
               execution (G.S. 1-353).


                                                  6
NC Child Support Council Conference                                                       John L. Saxon
August 18, 2005                                                Institute of Government, UNC-Chapel Hill

            e) Arrest of a judgment debtor who unjustly refuses to satisfy a judgment and may
               conceal himself or leave the state (G.S. 1-355).
            f) Procedures to discover assets by examining third parties who hold property of a
               judgment debtor or owe a debt to the judgment debtor (G.S. 1-360).
            g) Orders requiring a third party who holds property of a judgment debtor or owes a
               debt to the judgment debtor to liquidate the property and apply the proceeds to
               satisfy the judgment (G.S. 1-362).
        3. Supplemental proceedings generally are held before a judge or the clerk of superior
           court in the county in which the judgment was entered.
            •   If the supplemental proceedings involve examination of a judgment debtor or
                third party who resides in a county other than the county in which the judgment
                was entered, the examination must be held in the county in which the judgment
                debtor or third party resides.
        4. As a general rule, any nonexempt property of a debtor may be reached through
           supplemental proceedings.
            a) Supplemental proceedings may be used to enforce a judgment against debts owed
               to the judgment debtor by third parties, the judgment debtor’s legal interest in
               bank accounts, the judgment debtor’s interest in a decedent’s estate, the judgment
               debtor’s interest in a partnership, the judgment debtor’s contingent future interest
               in real property, one-half of the income derived from property held by the
               judgment debtor as joint tenant by the entireties, and other nonexempt real
               property, tangible personal property, or intangible personal property of the
               judgment debtor in the possession of the judgment debtor or third parties who are
               subject to the court’s personal jurisdiction.
            b) Supplemental proceedings may not be used to enforce a judgment against the
               judgment debtor’s future earnings, the judgment debtor’s earnings within the past
               sixty days to the extent necessary for support of the debtor’s family, the judgment
               debtor’s interest in real property held as joint tenant by the entireties (unless the
               debtor’s spouse is a co-judgment debtor), property that is exempt from execution
               or legal process under federal or state law, or property held by nonresidents who
               are not subject to the personal jurisdiction of North Carolina courts.
        5. A notice of supplemental proceedings served on a third party does not result in a lien
           on the debtor’s property in the possession of the third party or a debt owed by the
           third party to the judgment debtor.
        6. G.S. 1-358 does not authorize an order restraining a third party from disposing of a
           debtor’s property. Farmers & Mechanics Nat’l Bank v. Burns, 109 N.C. 105, 13 S.E.
           871 (1891).
        7. A third party who is indebted to a judgment debtor may voluntarily pay the amount of
           the debt to the sheriff to whom a writ of execution has been issued to satisfy a
           judgment. G.S. 1-359; Faught v. BB&T, 53 N.C. App. 132, 280 S.E.2d 26 (1981).




                                                 7
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill


    G. Satisfaction and Discharge of Judgment
        1. A judgment creditor who receives partial or full payment on a judgment must give
           notice within 60 days of receipt of the payment to the clerk of superior court in the
           county in which the judgment was entered. G.S. 1-239(c); AOC-CV-413.
            a) If the judgment creditor fails to notify the clerk after receiving a written demand
               from the judgment debtor to do so, the judgment creditor is subject to a $100 civil
               penalty and may be held liable to the judgment debtor for any loss caused by
               failure to provide notice of payment (plus attorneys fees).
            b) Upon receipt of notice of payment, the clerk must enter the payment on the
               judgment docket and forward a certificate of payment to the clerk of court in any
               county to which a transcript of judgment has been sent.
        2. Except as noted below, a judgment debtor may make partial or full payment on a
           judgment to the clerk of court in the county in which the judgment was entered.
            a) The clerk must note the payment on the judgment docket, give notice of the
               payment to the judgment creditor (AOC-CV-410), and remit the payment to the
               judgment creditor’s attorney of record or the judgment creditor.
            b) The clerk may not accept payment from a judgment debtor if there is an
               outstanding writ of execution to enforce the judgment.
            c) The clerk of court in a county to which a transcript of judgment has been sent may
               not accept payments on the judgment.
        3. When a judgment is paid in full, the clerk of court in the county in which the
           judgment was entered must cancel the judgment by noting on the judgment docket
           that the judgment has been “satisfied and paid in full” and sending notice of the
           payment to the clerk of superior court in any county to which a transcript of judgment
           was sent.
III. Statutory Lien for Past-Due Child Support
    A. Creation and Perfection of the Lien
        1. G.S. 44-86 (effective October 1, 1997) creates a general lien on the real and personal
           property of any person who is delinquent in the payment of court-ordered child
           support.
            a) A person is “delinquent” if (1) his or her child support arrearage is at least $3,000
               or an amount equal to three times the obligor’s monthly child support obligation,
               whichever is less, and (2) he or she is not in compliance with a court order
               regarding liquidation of the child support arrearage. See Davis v. Dept. of Human
               Resources, 126 N.C. App. 383, 485 S.E.2d 342 (1997), aff’d. in part and rev’d. in
               part, 349 N.C. 208, 505 S.E.2d 77 (1998).
            b) A lien under G.S. 44-86 attaches to the obligor’s real or personal property that is
               located or titled in North Carolina. It does not attach to property that is located in
               other states. See Hawley v. Murphy, 736 A.2d 268 (Me. 1999).




                                                  8
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill

        2. In a IV-D case, the lien is established by filing a verified statement of child support
           delinquency with the clerk of superior court in the county in which the child support
           order was entered.
            a) Notice of the lien must be served on the obligor pursuant to Rule 4.
            b) The obligor may contest the lien by filing a motion in the cause. The statute does
               not indicate the time period within which the motion must be filed (to contest the
               lien, an obligor in a non-IV-D case must file a motion within 30 days of service of
               notice of the verified statement of child support delinquency).
            c) The statute does not state the grounds on which an obligor may contest the lien.
            d) If the obligor contests the lien, the matter should be scheduled for hearing before
               a district court judge to determine the validity of the lien.
        3. North Carolina must recognize and enforce a child support lien arising under the law
           of another state if the lien is filed in accordance with the procedures specified in G.S.
           44-86 and those specified under the Uniform Enforcement of Foreign Judgments Act
           (G.S. 1C-1701 et seq.).
    B. Lien on the Obligor’s Real Property
        1. In a IV-D case, the clerk of superior court is required to docket and index the lien as a
           judgment promptly after the verified statement of child support delinquency is filed.
        2. When the lien is docketed and indexed it attaches and is perfected with respect to the
           debtor’s interest in real property located in the county in which the child support was
           entered and has the same attributes as, and may be enforced in the same manner as, a
           judgment lien for past-due child support (see above).
            •   The lien may be docketed in another North Carolina, and will constitute a lien on
                the debtor’s real property in that county, pursuant to a transcript of judgment
                issued by the clerk of superior court in the county in which the child support order
                was entered to the clerk of superior court in the other county (see above).
    C. Lien on the Obligor’s Personal Property
        •   The lien attaches and is perfected with respect to the debtor’s interest in personal
            property only when the property is levied upon by the sheriff pursuant to a writ of
            execution.
    D. Enforcement of the Lien
        1. The lien may be enforced against the delinquent obligor’s real or personal property in
           the same manner and to the same extent as a civil judgment for past-due child support
           through writs of execution, supplemental proceedings, and execution sales (see
           above). G.S. 44-86(f).
        2. In a IV-D case, the clerk of superior court may not issue a writ of execution to
           enforce the lien until thirty days after the lien’s perfection.




                                                  9
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill


     E. Discharge of the Lien
        1. A lien under G.S. 44-86 is discharged when the IV-D agency files with the clerk of
           superior court an acknowledgment that the obligor has satisfied the full amount of the
           lien.
        2. A lien under G.S. 44-86 is discharged when an action to enforce the lien is dismissed
           or judgment is rendered against the person claiming the lien and that fact is noted on
           the judgment docket.
        3. A lien under G.S. 44-86 is discharged when the obligor deposits with the clerk of
           superior court cash equal to the amount of the lien and files a motion requesting a
           judge to determine the validity of the lien.
            •   The money deposited with the clerk may not be disbursed except by court order
                following a hearing on the merits.
IV. Mortgages and Security Interests
     A. G.S. 50-13.4(f)(1)
        1. A court may require an obligor to secure the future payment of court-ordered child
           support by executing a mortgage, deed of trust, or other security interest in the
           debtor’s real or personal property.
            •   The mortgage, deed of trust, or security interest is a nonpossessory lien on the
                obligor’s property to secure the obligor’s payment of child support and may be
                enforced against the obligor’s property if he or she fails to comply with the child
                support order.
        2. An obligor may not be required to execute a mortgage or deed of trust with respect to
           property that the obligor holds as joint tenant by the entireties with the obligor’s
           spouse.
        3. If an obligor is ordered to execute a mortgage, deed of trust, or security interest and
           fails to do so the court may order that the mortgage, deed of trust, or security interest
           be executed on behalf of the obligor pursuant G.S. 1A-1, Rule 70.
     B. Perfection and Enforcement
        1. A mortgage, deed of trust, or security interest executed pursuant to G.S. 50-13.4(f)(1)
           must be recorded and perfected in the same manner as a consensual lien on the
           property to which the lien attaches.
        2. A mortgage, deed of trust, or security interest executed pursuant to G.S. 50-13.4(f)(1)
           may be enforced through repossession, foreclosure, or other legal proceedings in the
           same manner as a consensual lien on the property to which the lien attaches.
V.    Lien on Insurance Benefits
     A. Creation and Perfection of Lien
        1. A lien for past-due child support arrearages is created under G.S. 58-3-185 when a
           IV-D agency (or other child support obligee) provides written notice to an insurance
           company that is authorized to issue insurance policies in North Carolina pursuant to


                                                 10
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill

            G.S. Ch. 58 that a claimant or beneficiary under an insurance contract owes past-due
            child support and provides the insurance company with a certified copy of the child
            support order and proof that the claimant or beneficiary owes past-due child support
            under the order.
        2. The lien attaches only if payments to the claimant or beneficiary exceed $3,000
           (either as a lump sum or periodic payments that exceed $3,000). If payments to the
           claimant or beneficiary exceed $3,000, the lien attaches to the full amount of the
           payments up to the amount of past-due child support, not just the amount of payments
           in excess of $3,000.
        3. The exemption of life insurance proceeds under Art. X, section 5 of the North
           Carolina Constitution does not apply when the obligor is the claimant or beneficiary
           under a life insurance policy.
        4. The IV-D agency or obligee is not required to show that the obligor’s nonpayment of
           court-ordered child support was willful or that the obligor is “delinquent.”
        5. The IV-D agency or obligee is not required to reduce the past-due child support to
           judgment or obtain a court order authorizing the imposition of the lien.
    B. Priority of Lien
        1. In cases involving insurance payments for personal injuries, child support liens under
           G.S. 58-3-185 are subordinate to liens under G.S. 44-49 and 44-50 for unpaid medical
           expenses.
        2. Child support liens under G.S. 58-3-185 are subordinate to valid health care provider
           claims covered by health benefit plans (other than disability income insurance) as
           defined in G.S. 58-3-172.
        3. Child support liens under G.S. 58-3-185 are subordinate to the payment of attorneys
           fees in workers compensation cases pursuant to G.S. 97-90. Orange County ex rel.
           Byrd v. Byrd, 129 N.C. App. 818, 501 S.E.2d 109 (1998).
    C. Enforcement of Lien
        •   The statute does not state how the lien may be enforced or whether the insurance
            company is liable if the insurance company refuses to satisfy the lien and pays the
            proceeds to the obligor or third parties. See Charlotte-Mecklenburg Hospital
            Authority v. First of Ga. Ins. Co., 340 N.C. 88, 455 S.E.2d 655 (1995).
VI. Attaching Personal Injury Settlements and Judgments
    A. No Statutory Lien for Past-Due Child Support
        •   In 1995, the General Assembly enacted legislation creating a lien for past-due child
            support against funds payable to an obligor as compensation for personal injuries or
            in settlement of the obligor’s claim for personal injury in litigation or otherwise. The
            law, however, was repealed in 1996 before it took effect.
    B. Supplemental Proceedings
        •   A judgment for past-due child support under G.S. 50-13.4(f)(8) or a lien for past-due
            child support under G.S. 44-86 may be enforced through supplemental proceedings


                                                 11
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill

            against personal injury settlements or judgments payable to the judgment debtor or
            obligor.
VII. Garnishing Bank Accounts
    A. G.S. 110-139.2(b1)
        1. G.S. 110-139.2(b1) authorizes the state IV-D agency to assert a lien against
           nonexempt funds belonging to a delinquent child support obligor in an account with a
           financial institution (bank, savings and loan association, credit union, insurance
           company, money market mutual fund, investment company, etc. incorporated or
           doing business in the state).
            •   As a matter of policy, the state IV-D agency does not assert liens against checking
                accounts, trust accounts, or accounts with balances of less than $225.
        2. The lien may be claimed only in cases in which the obligor is “delinquent” (see
           above) and owes child support arrearages in excess of $1,000 or six times the
           obligor’s monthly child support obligation, whichever is less.
        3. The lien attaches when the financial institution receives notice of the lien from the
           state IV-D agency.
        4. Notice of the lien must be served on the delinquent child support obligor pursuant to
           Rule 4.
        5. The obligor may contest the lien by requesting a hearing before the district court in
           the county in which the child support order was entered within ten days of service of
           notice of the lien. The lien may be contested only on the ground that the obligor is not
           the person who is subject to the child support order or that the child support
           arrearages owed by the obligor do not exceed $1,000 or six times the obligor’s
           monthly child support obligation, whichever is less.
        6. If the obligor fails to contest the lien, the financial institution must submit payment to
           the state IV-D agency from the obligor’s account up to the amount of the lien. The
           state IV-D agency must apply the payment to the obligor’s child support arrearage.
        7. It is unlawful to attach a joint bank account held in the name of a delinquent child
           support obligor and another person to the extent that the funds in the account are the
           property of the other person. See “Freezing and Seizing” Joint Bank Accounts to
           Collect Past-Due Child Support: Due Process and Legal Rights of Nonliable
           Depositors, Family Law Bulletin No. 19 (Institute of Government, August, 2004).
    B. Supplemental Proceedings
        1. A judgment for past-due child support under G.S. 50-13.4(f)(8) or a lien for past-due
           child support under G.S. 44-86 may be enforced through supplemental proceedings
           against a judgment debtor’s or obligor’s bank account.
        2. If a writ of execution has been issued to enforce a judgment for past-due child support
           or a lien for child support arrearages under G.S. 44-86, a bank may voluntarily pay
           the amount of the judgment or lien from the obligor’s or judgment debtor’s account to
           the sheriff to whom the writ of execution is issued. G.S. 1-359; Faught v. BB&T, 53
           N.C. App.132, 280 S.E.2d 26 (1981).


                                                 12
NC Child Support Council Conference                                                       John L. Saxon
August 18, 2005                                                Institute of Government, UNC-Chapel Hill

VIII. Attaching Pensions and Retirement Accounts
    A. IRA, Roth IRA, SEP-IRA, and SIMPLE IRA
        1. Individual retirement accounts (IRAs, Roth IRAs, SEP-IRAs, and SIMPLE IRAs)
           that are held on behalf of individuals who owe past-due child support are subject to
           attachment and garnishment through supplemental proceedings or (if the account is
           held by a financial institution) the “freeze and seize” provisions of G.S. 110-
           139.2(b1).
        2. The individual retirement accounts identified above are not subject to the anti-
           alienation provisions of the federal Internal Revenue Code (IRC) or the Employee
           Retirement Income Security Act (ERISA).
            •   Because these types of individual retirement accounts are not subject to IRC’s or
                ERISA’s anti-alienation provisions, a qualified domestic relations order (QDRO)
                is not required to attach or garnish these accounts to collect past-due child
                support.
        3. G.S. 1C-1601(a)(9) generally exempts individual retirement accounts from execution
           to enforce the claims of creditors, but this exemption does not apply to claims for
           past-due, court-ordered child support. See G.S. 1C-1601(e)(9).
    B. TSERS and LGERS Retirement Benefits
        1. Retirement benefits that are currently payable to retirees under the state Teachers’ and
           State Employees’ Retirement System (TSERS) or the Local Government Employees’
           Retirement System (LGERS) may be “garnished” through the income withholding
           procedures set forth in G.S. 110-136.3 et seq. to collect current child support (or
           spousal support) and past-due child support (or spousal support) arrearages owed by
           the retiree.
            •   Although TSERS and LGERS benefits generally are nonassignable and exempt
                from garnishment, attachment, or other legal process, they are not exempt from
                “garnishment” to collect child or spousal support pursuant to G.S. 110-136.3 et
                seq. See G.S. 128-31; G.S. 135-9.
        2. Although a former state or local government employee may have a right to receive a
           refund of contributions to TSERS or LGERS, these contributions probably are not
           subject to “garnishment” through supplemental proceedings to collect past-due, court-
           ordered child support arrearages.
    C. “Qualified” Employee Pensions (IRC and ERISA)
        1. IRC and ERISA generally protect “qualified” employee pension plans (including
           401(k) and 403(b) plans, Keough plans, employee stock ownership plans (ESOPs),
           simplified employee pensions (SEPs), defined contribution employee pension plans,
           and defined benefit employee pension plans) from garnishment or other legal process
           to satisfy claims against employees, retirees, and beneficiaries who participate in
           these plans. See 26 U.S.C. 401(a)(13); 29 U.S.C. 1056(d)(1); 26 C.F.R. 1-401(a)-13.
            •   These federal restrictions probably prohibit a child support creditor from attaching
                or garnishing the “corpus” of an obligor’s employee pension account in a defined


                                                 13
NC Child Support Council Conference                                                       John L. Saxon
August 18, 2005                                                Institute of Government, UNC-Chapel Hill

                contribution plan or contributions by or on behalf of the obligor to a defined
                benefit plan.
        2. A court, however, may enter a qualified domestic relations order (QDRO) requiring a
           “qualified” employee pension plan to pay all or part of an individual’s retirement
           benefits, annuity, etc. under the plan to the individual’s child or former spouse for
           current or past-due child support. See 26 U.S.C. 401(a)(13); 29 U.S.C. 1056(d)(1).
            •   These payments, however, may not exceed or be different in form than those
                payable to the obligor under the plan and may not begin before the date the
                obligor is first entitled to receive payments under the plan.
    D. Federal Employees Retirement System
        1. Retirement benefits payable to retired employees under the Federal Employees
           Retirement System (FERS) or the Civil Service Retirement System (CSRS) are
           subject to income withholding to collect current or past-due child support owed by
           retired federal civilian employees.
        2. The vested balance in a federal employee’s FERS Thrift Savings Account (a defined
           contribution plan similar to a 401(k) or 403(b) plan) may be “garnished” through
           supplemental proceedings to enforce a judgment or lien for past-due child support.
           The order must meet the requirements set forth in 5 U.S.C. 8437(e)(3) and 5 C.F.R.
           1653.12.
    E. Military Pensions, Veterans Administration Benefits, and Military Pay
        1. Military pension benefits payable to a retiree who owes current or past-due child
           support are subject to “garnishment” under the Uniformed Services Former Spouses
           Protection Act. 10 U.S.C. 1048; 32 C.F.R. 63.
            •   Military pension benefits also are subject to income withholding (for current or
                past-due child support) or “garnishment” through supplemental proceedings (for
                past-due child support). A QDRO is not required.
        2. In general, VA benefits payable to an obligor who owes child support are not subject
           to attachment, garnishment, or income withholding to collect current or past-due child
           support. See 42 U.S.C. 662(f)(2); 5 C.F.R. 581.103; Rose v. Rose, 481 U.S. 619
           (1987).
            •   An obligee, however, may request the Veterans Administration to apportion 20-
                50% of an obligor’s VA benefits to pay current or past-due child support. 38
                C.F.R. 3.450(a)(ii).
        3. This outline does not discuss, in detail, “garnishing” the pay of military personnel to
           collect current or past-due child support.
            a) A military service member’s pay (not including BAQ, BAS, or VHA) is subject to
               income withholding to collect current and past-due child support. 5 C.F.R.
               581.103, 581.104.
            b) A IV-D agency may request an “involuntary allotment” of an active-duty military
               service member’s pay if he or she owes child support arrearages equal to at least



                                                 14
NC Child Support Council Conference                                                                  John L. Saxon
August 18, 2005                                                           Institute of Government, UNC-Chapel Hill

                  two times his or her monthly child support obligation. See 42 U.S.C. 665; 32
                  C.F.R. 54.3 et seq.
IX. Attaching the Assets of Decedents’ Estates
     A. Estates of Deceased Child Support Obligors
         1. The estate of a deceased child support obligor is liable for the payment of child
            support arrearages that accrued before the obligor’s death.
         2. State law requires IV-D agencies to file claims for child support arrearages against
            the estates of deceased child support obligors if the assets of the decedent’s estate are
            sufficient to pay the child support arrearages.
         3. Claims against a decedent’s estate must be filed with the personal representative
            (executor or administrator) within the time specified in the general notice to creditors
            (usually three months from the date of publication).
         4. Filing a claim against the decedent’s estate does not create a lien against the
            decedent’s property.
         5. Child support claims are not entitled to priority in paying claims against the estate
            unless they are secured by a lien on the decedent’s property or have been docketed as
            a judgment before the decedent’s death.
         6. If the personal representative fails to pay a claim for child support arrearages owed by
            the decedent, the IV-D agency or obligee may bring a civil action against the personal
            representative to collect the claim.
     B. Obligors’ Interests in Decedents’ Estates
         1. A judgment for past-due child support under G.S. 50-13.4(f)(8) or a lien for past-due
            child support under G.S. 44-86 may be enforced through supplemental proceedings
            against a judgment debtor’s or obligor’s interest as heir, devisee, etc. in a decedent’s
            estate.
         2. A child support creditor may not file a claim for child support arrearages against a
            decedent’s estate when the child support arrearages are owed by someone who is an
            heir, devisee, etc. rather than the decedent.
         3. If an obligor who owes past-due child support renounces his or her interest in a
            decedent’s estate, a child support creditor may be able to challenge the renunciation
            under the Uniform Fraudulent Transfer Act (G.S. 39-23.1 et seq.).
X.    Attaching Federal and State Income Tax Refunds*
XI. Property Exempt from Child Support Liens
     A. G.S. 1C-1601
         •   The statutory exemptions under G.S. 1C-1601 et seq. do not apply to execution, etc.
             to enforce payment of court-ordered child support. G.S. 1C-1601(e)(9); G.S. 50-
             13.4(f)(10).

*
 This outline does not address the procedures for attaching federal and state income tax refunds to collect past-due
child support. See G.S. 105A-1 et seq; 42 U.S.C. 664, 45 C.F.R. 303.72.


                                                         15
NC Child Support Council Conference                                                       John L. Saxon
August 18, 2005                                                Institute of Government, UNC-Chapel Hill

    B. Constitutional “Homestead” Exemption
        •   A parent’s obligation to pay child support is not a “debt” and the “homestead”
            exemption in Art. X, section 2 of the N.C. Constitution therefore does not protect the
            parent’s property from execution, etc. to enforce payment of court-ordered child
            support. Walker v. Walker, 204 N.C. 210, 167 S.E. 818 (1933); Anderson v.
            Anderson, 183 N.C. 143, 110 S.E. 863 (1922).
    C. Life Insurance Policies
        •   Article X, section 5 of the N.C. Constitution exempts from the claims of an
            individual’s creditors the proceeds of a life insurance policy payable to the
            individual’s spouse or children. It is not clear whether this exemption applies to an
            insured individual who owes past-due child support.
    D. Tenants by the Entireties
        •   Real property (or a mobile home) owned by an obligor who owes past-due child
            support may not be attached, garnished, or levied upon to enforce a judgment or lien
            for past-due child support if the property is owned by the obligor and his spouse as
            joint tenants by the entireties (except in the rare cases in which both the obligor and
            the spouse are jointly liable for a child support debt because they are the grandparents
            of a child of a minor parent or perhaps when they are both responsible for paying
            child support to a third party who has custody of their child).
    E. Other Exemptions under Federal and State Law
        1. Federal law exempts Supplemental Security Income (SSI) and most Veterans
           Administration (VA) benefits from attachment or garnishment for child support.
            •   Although federal law protects Social Security benefits, military pensions, federal
                retirement benefits, etc. from attachment or garnishment, federal law also
                provides that these benefits are subject to income withholding, garnishment,
                attachment, etc. to collect current and past-due child support to the extent that
                they are payments for remuneration for personal services. See 42 U.S.C. 659.
        2. Public assistance payments under G.S. Ch. 108A and Ch. 111 (including Work First,
           Adoption Assistance, and Aid to the Blind) are not subject to income withholding,
           attachment, garnishment, levy, or execution to collect current or past-due child
           support.
            •   Although state law protects workers compensation payments, unemployment
                benefits, and state and local government retirement benefits from attachment or
                garnishment, state law provides that these benefits are subject to income
                withholding, garnishment, attachment, etc. to collect current and past-due child
                support to the extent that they are payments for remuneration for personal
                services.
    F. Bankruptcy Preemption
        •   Property that is claimed as exempt by a debtor in a bankruptcy case filed on or after
            October 17, 2005 is not exempt from a claim for past-due child support owed by the
            debtor even if the property would have been exempt from the child support claim


                                                 16
NC Child Support Council Conference                                                         John L. Saxon
August 18, 2005                                                  Institute of Government, UNC-Chapel Hill

            under other federal or state laws if the debtor had not filed for bankruptcy. 11 U.S.C.
            522(c)(1). See also Impact of the New Bankruptcy Reform Act on Family Law in
            North Carolina, Family Law Bulletin #20 (June, 2005).
XII. Bankruptcy and Child Support Liens
    A. Automatic Stay
        1. When an obligor files for bankruptcy, the filing of the bankruptcy case generally acts
           as an automatic stay prohibiting:
            a) any act to create, perfect, or enforce a lien against property that is property of the
               obligor’s “bankruptcy estate;”
            b) any act to create, perfect, or enforce a lien against the obligor’s property to the
               extent that the lien secures a pre-bankruptcy claim against the obligor; and
            c) most other legal proceedings or actions to enforce or collect pre-bankruptcy
               claims or judgments from the obligor or the obligor’s property.
        2. The automatic stay generally remains in effect until the obligor is granted or denied a
           discharge in bankruptcy or until the obligor’s bankruptcy case is dismissed or closed,
           whichever occurs first.
            a) In chapter 7 cases, the automatic stay generally remains in effect for
               approximately three months following the date the obligor files for bankruptcy.
            b) In chapter 13 cases, the automatic stay may remain in effect for as long as five
               years.
        3. Provisions of the automatic stay that apply to property of the “bankruptcy estate”
           remain in effect as long as the property remains property of the bankruptcy estate.
            a) In a chapter 7 case, property of the bankruptcy estate generally includes all
               property owned by the obligor at the time the bankruptcy case is filed. Property
               that the obligor claims as exempt ceases to be property of the bankruptcy estate
               after the time for filing objections to exemptions has expired (usually 8 to 10
               weeks after the date the bankruptcy case was filed).
            b) In a chapter 13 case, property of the bankruptcy estate generally includes all
               property owned by the obligor at the time the bankruptcy case is filed and all
               property acquired by the obligor after the bankruptcy is filed. Property generally
               ceases to be property of the estate when the obligor’s chapter 13 plan is
               confirmed.
        4. Under the current bankruptcy law, the automatic stay does not apply to the
           “collection” of current or past-due child support from property that is not property of
           the obligor’s bankruptcy estate.
            •   This exception, however, does not allow the creation, perfection, or enforcement
                of a lien for past-due child support against the obligor’s property when the
                property is not property of the obligor’s bankruptcy estate.
        5. Under the revised bankruptcy law (effective October 17, 2005), the automatic stay
           will not apply to:


                                                  17
NC Child Support Council Conference                                                        John L. Saxon
August 18, 2005                                                 Institute of Government, UNC-Chapel Hill

            a) the collection of current or past-due child support through income withholding
               from property that is the obligor’s property or property of the obligor’s
               bankruptcy estate;
            b) the collection of current or past-due child support by a IV-D agency through the
               attachment of an obligor’s federal or state income tax refund; or
            c) other specific child support enforcement actions (described in Family Law
               Bulletin #20).
        6. Except as noted above, the federal bankruptcy law’s automatic stay still prohibits the
           enforcement of a child support claim or judgment against an obligor through the
           creation, perfection, or lien against the obligor’s property or property of the obligor’s
           bankruptcy estate, the issuance or execution of a writ of execution to enforce a pre-
           bankruptcy judgment for past-due child support, or the commencement or
           continuation of supplemental proceedings to enforce a pre-bankruptcy judgment for
           past-due child support.
            •   If the automatic stay is in effect, the bankruptcy court, upon motion by a child
                support creditor, may grant relief from the automatic stay allowing the creation,
                perfection, or enforcement of a lien against the obligor’s property or property of
                the bankruptcy estate, the issuance of a writ of execution to enforcement a pre-
                bankruptcy judgment for past-due child support, etc.
    B. Avoiding Liens on Exempt Property
        1. The bankruptcy law allows a debtor to avoid (remove) certain types of liens on the
           debtor’s exempt property.
        2. The bankruptcy law, however, does not allow an obligor to avoid a statutory lien for
           past-due child support.
        3. The current bankruptcy law does not allow an obligor to avoid a judicial lien for
           unassigned child support debts.
        4. The revised bankruptcy law (effective October 17, 2005) will not allow an obligor to
           avoid a judicial lien for assigned or unassigned child support debts.
        5. A child support creditor who has a valid lien against an obligor’s property for past-
           due child support is treated as a secured creditor if the obligor files for bankruptcy.
        6. Pre-bankruptcy debts for past-due child support generally are not dischargeable in
           bankruptcy. A debtor’s bankruptcy discharge does not extinguish pre-bankruptcy
           debts for past-due child support claim or affect the validity of any pre-bankruptcy lien
           against the obligor’s property held by a child support creditor.




                                                 18
NC Child Support Council Conference                                                           John L. Saxon
August 18, 2005                                                    Institute of Government, UNC-Chapel Hill

                     Using Liens to Collect Past-Due Child Support

Discussion Questions
    John owes $3,333 in past-due child support to Jane.
    Can Jane obtain and enforce a lien against John’s interest in the following property?
    If so, what is the legal authority for asserting a lien against the property and how can the lien
be perfected and enforced?
    If not, what other legal remedies are available to collect the child support arrearage?
1. Real property owned solely by John in the county in which the child support order was
   entered.
2. Real property owned solely by John in another county in North Carolina.
3. Real property owned solely by John in another state.
4. Real property that is owned by John and his new wife (Judy).
5. A mobile home that is owned by John and his new wife (Judy).
6. A motorcycle or boat owned by John.
7. An automobile owned by John and his new wife (Judy).
8. A joint checking or savings account or certificate of deposit held in the names of John and
   his elderly mother (Mary).
9. John’s $25,000 individual retirement account (IRA) held by a North Carolina bank (from
   which he may not make withdrawals without financial or tax penalties).
10. John’s $25,000 “401(k)” retirement account.
11. John’s retirement “account” under the state Teachers’ and State Employees’ Retirement
    System (TSERS) (the total amount of contributions made on John’s behalf is $25,000 and his
    beneficiary will receive these contributions if he dies before he retires but he is not currently
    eligible to receive retirement benefits because he hasn’t worked long enough).
12. A $2,500 payment that John is entitled to receive from Geico Insurance Company in
    connection with his claim for property damage to his automobile.
13. The $2,000 “cash value” of a “whole life” insurance policy on John’s life that names his new
    wife, Judy, as the sole beneficiary.
14. A $10,000 payment that will be received by John’s attorney in connection with the settlement of a
    personal injury claim by John against a third party (no lawsuit was filed, John’s attorney claims
    $3,000 for attorneys fees, and John owes doctor and hospital bills of $5,000 related to the injury).
15. A $10,000 payment that will be received by John’s attorney in connection with a court judgment
    entered in a personal injury lawsuit by John against a third party (John’s attorney claims $3,000 for
    attorneys fees, and John owes doctor and hospital bills of $5,000 related to the injury).
16. John’s interest in his recently-deceased mother’s estate.

								
To top