We are upside down on some property in Alabama. Bought it for $400K. Have had on the market for $200K with no interest. We owe $200K to a bank and $200 to the original seller. We are trying to workout an extension with the bank, but we think the original seller is going to go for a judgment against us. We are moving to Arkansas, but I will be commuting and working in Texas. What laws apply regarding the judgement? Texas where I work, Arkansas, where we will be living or Alabama where the property is? If we homestead our property in Arkansas will it be exempt from a judgment? Will my wages be exempt from the judgment in Texas? Can they put a judgment on our bank accounts and any other real property we have? Would appreciate any information you have. Thank you.
As initially entered, a judgment issued by a court in Alabama can only be enforced in Alabama, meaning that only assets (such as a home, land, bank accounts, wages, etc.) which are located in that state are subject to any creditor execution efforts. However, if the creditor thinks that you have assets located in another state which could pay off the judgment, it can file a petition with the appropriate court in that state to “domesticate” the Alabama judgment, which could make the AL judgment enforceable in the other state. Once a judgment is domesticated, it is generally treated just like any other judgment in the new state. For example, if a Texas court domesticates the judgment from Alabama, it would be enforceable in Texas as if it had originated in Texas — all laws relating to the enforcement of judgments in Texas, including the homestead and wage garnishment exemptions, would apply to any action taken to collect on the judgment in Texas Since you will be working in Texas, this means that your wages should be exempt from garnishment; the one important exception would be if your employer is headquartered in AL, in which case a judgment creditor may be able to garnish your wages under Alabama law and without domesticating the judgment. I strongly encourage you to consult with an attorney about the situation with the sale of your property in AL and how your planned move will affect the creditor's ability to enforce any judgment it obtains against you.
If the judgment creditor domesticates its judgment against you in Arkansas, your home may be protected by the homestead exemption granted by the Arkansas Constitution, which protects the homestead of any person who is married or the head of a family from execution on judgments owed to unsecured creditors and many other types of debt (see Constitution of Arkansas, Article IX, Section 3). However, if you have bank accounts or other property in Arkansas, they could be subject to claims by the judgment creditor, so you may need to make sure that you take steps to protect your personal bank accounts and other valuable property. Again, I encourage you to speak with an attorney to discuss the situation at hand and to help you determine the best way to protect yourself from the former seller’s claims against you. For example, you may wish to consider filing for bankruptcy protection once you complete the short sale; a Chapter 7 bankruptcy may allow you to completely discharge this debt and any other outstanding, unsecured obligations you have, thus greatly reducing your exposure to collection efforts by your creditors. To learn more about bankruptcy, you can visit the Bills.com bankruptcy page.
Remember that the former seller cannot take any of the actions mentioned in this answers to domesticate or enforce a judgment against you until he files a lawsuit and obtains a judgment in Alabama, which is by no means guaranteed, especially if you have any valid defenses against the creditor’s claims. Also, many judgment creditors do not pursue domestication of their judgments in other states, especially if they know that they will probably be unable to collect due to strong consumer protection laws, like those in Texas. While it would be wise to consult with an attorney, gather all of the information you need, and take steps to prepare for the worst case scenario, the concerns you raise in your question may never come to pass. All you can do at this point is take stock of the potential risks, take whatever steps needed to protect your assets, and hope for the best.
I wish you the best of luck in resolving this situation, and hope that the information I have provided helps you Find. Learn. Save.