The collection of business debt is an unwanted but necessary and inevitable part of conducting business. A writ of attachment is likely the most effective tool any business owner may use to secure payment of a past due obligation. The attachment of assets may prevent the debt from becoming uncollectible by requiring its prompt payment prior to the debtor becoming insolvent or declaring bankruptcy. It may also improve a creditor’s bargaining position for any negotiations of a settlement.
There are four requirements for the types of claims in which attachment is authorized under California law. First, pre-judgment writs of attachment must be based on claims for money based on an express or implied contract. Second, the total amount at issue must be a fixed or readily ascertainable amount of $500 or more, including costs and fees. C.C.P. § 483.010(a).
Third, the claim must not be secured and, if so, the security must have no value or a value that is less than the amount of the claim. C.C.P. § 483.010(b). Finally, if the action is against a person, an attachment may be issued only on a debt that arises out of a trade, business or profession. C.C.P. § 483.010(c); 492.010(a).
The pre-trial nature of attachment raises due process concerns and therefore necessitates strict statutory requirements. Fifty years ago, the California Supreme Court held that pretrial attachments of bank account, without due process of law, are an unconstitutional deprivation of property. Since the pre-trial attachment statutes have been amended to balance the property rights of both debtor and creditor in this situation.
To attach the debtor’s property, a plaintiff-creditor must obtain a right-to-attach order and a writ of attachment. If the claim supports the issuance of a writ of attachment and the court determines that the property to be attached is not exempt, the court will issue the writ.
Plaintiff-creditors have two ways available that they may use to obtain a right-to-attach order. The most common method is by a noticed hearing. The creditor must serve the notice of hearing and application for a writ of attachment on the debtor at least 16 days before the date set for the hearing and the debtor’s notice of opposition must be filed and served at least five days before the hearing.
The second, and much more difficult, method is by an ex parte application for a right-to-attach order or a temporary protective order (TRO). To receive a writ, creditors must demonstrate that they will suffer great or irreparable injury by the delay of the issuance of the writ of attachment until after a noticed hearing. Creditors are only required to give a one-court-day notice before submitting an ex parte application, significantly shorter than the 16-day notice for the noticed hearing procedure.
Creditors may demonstrate great or irreparable injury if there is a danger that the property to be attached may be concealed, substantially impaired in value, or made unavailable to the levy of an attachment. Great or irreparable injury may also be shown if the debtor is insolvent. Regardless of the method used to obtain a right-to-attach order, a creditor must verify and prove by affidavit the “probable validity” of their claim. Also, right-to-attach orders require a bond and any writ is invalid if the bond is not filed when the writ of attachment is granted.
The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to [email protected] or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.