Legal Definitions - creditor's bill

Creditor's Bill

A creditor's bill (also known as a creditor's suit) is a special type of lawsuit filed by a party who has already won a judgment in court (the judgment creditor) against another party who owes them money (the judgment debtor).

The primary purpose of this legal action is to compel the debtor to reveal or turn over assets that are difficult or impossible for the creditor to reach through standard collection methods. These assets might be hidden, held in complex arrangements, or transferred to others to avoid payment, making typical enforcement tools like wage garnishment or bank account levies ineffective. A creditor's bill seeks the court's equitable power to uncover and access these otherwise inaccessible assets to satisfy the outstanding judgment.

Here are some examples illustrating how a creditor's bill might be used:

• Example 1: Hidden or Fraudulently Transferred Assets

  Imagine a small business owner, Sarah, wins a court judgment against a former client, Mark, for unpaid services. Mark, knowing he owes Sarah money, quickly transfers ownership of a valuable antique car collection he owns to his cousin for a very low price, hoping to keep it out of Sarah's reach. Sarah's standard collection efforts, like trying to seize Mark's bank accounts, are unsuccessful because the cars are no longer legally in his name. In this situation, Sarah could file a creditor's bill. She would ask the court to investigate the transfer to Mark's cousin and, if it finds the transfer was made to defraud her, order the cars to be made available to satisfy her judgment.

• Example 2: Complex or Non-Liquid Assets

  Consider a situation where David owes a significant sum to a bank following a court judgment. David has very little money in his bank accounts and no regular wages to garnish. However, the bank discovers that David holds a substantial, but illiquid, ownership interest in a private, closely-held startup company that is not publicly traded. This ownership interest is valuable but cannot be easily sold or seized through conventional means. The bank could file a creditor's bill, asking the court to order David to disclose the full details of his interest in the startup and potentially compel the sale of that interest, or a portion of it, to satisfy the debt.

• Example 3: Assets in a Discretionary Trust

  Suppose a landlord, Mr. Henderson, obtains a judgment against a former tenant, Lisa, for extensive property damage. Lisa claims she has no assets, but Mr. Henderson learns that Lisa is the beneficiary of a discretionary trust set up by her wealthy aunt. While Lisa doesn't directly control the trust's assets, the trust occasionally makes distributions to her. Standard collection methods can't directly access the trust's funds. Mr. Henderson could file a creditor's bill, asking the court to investigate the trust's terms and potentially order future distributions from the trust to Lisa to be paid directly to him until his judgment is satisfied, if legally permissible under the trust's terms and state law.