MCA Turnover Proceedings: 5 Distinctions That Decide Funds Held by a Third Party

A judgment against the business does not place every dollar held by another person in the creditor’s hands. A turnover order does that work, and only after the creditor presents the request through the court procedure the statute prescribes.

Before the papers arrive, before the bank sends its notice of a hold, the owner should identify who holds the property and what interest the judgment debtor has in it. The response turns on documents, not on the balance the owner remembers from the last statement.

The Motion and the Special Proceeding

New York turnover procedure under CPLR 5225 draws a line between property the debtor holds and property held by someone else. Where the debtor has possession or custody, the creditor proceeds by motion on notice, and the court orders payment of money or delivery of personal property to a designated sheriff.

Where another person holds the property, or received it as a transferee from the debtor, the statute requires a special proceeding against that person. The creditor must show that the debtor is entitled to possession or that the creditor’s rights are superior to those of the transferee. A statement that the judgment remains unpaid does not complete that showing. That is where these matters are won or lost.

The judgment named the debtor. The money sat with someone else.

Notice of the motion or proceeding reaches the debtor in the manner of a summons or by registered or certified mail with a return receipt requested. The court may permit the debtor to intervene. The underlying judgment establishes an obligation against the named debtor. Behind that judgment sits the question of ownership, which the turnover court must still decide.

The Holder and the Property

Match the petition to the funds or assets at issue. A bank balance, a processor reserve and whether anyone involved understood what the holder was instructed to do with the money often decide the outcome. Money in the hands of another behaves like weather reported from another county: described with confidence, experienced at a distance.

The debtor’s use of an account, or a long relationship with the person holding the money, does not by itself establish the full ownership picture where several people claim interests in the same funds, because the agreement governing the particular relationship, the source of the deposits and the instructions the holder received may each point toward a different conclusion about whose money the proceeding concerns.

Most funders understand what a frozen account costs a business that runs on card receipts. The papers never mention that cost.

The response should identify the actual interest claimed by the judgment debtor, which is, if we are being precise, a narrower question than whether the funds look like business money. Where a transfer is alleged, the transaction documents and the consideration received belong in the file.

An assertion that the property is business money can leave the central question unanswered.

You receive the notice and then you learn what the notice claims. A demand on a customer can sound outlandish until the statute is read.

Keep the holder’s name, the account numbers and the dates in one file.

Evidence for the Creditor’s Showing

Under the third party track, the court considers whether the debtor is entitled to possession or the creditor’s rights are superior to those of the transferee in the circumstances the statute specifies. The request therefore requires evidence tied to the property (the precise showing varies with the property and the transfer). How a court weighs a superior right on a thin record is a question the papers often leave open, which is part of the problem.

Account records, transaction documents and the agreement between the debtor and the holder may support or contest different parts of the claim. A holder may possess records the debtor has never seen. Identify those records for counsel so the response addresses the account shown in the papers.

The holder’s position remains separate from the debtor’s. A bank or customer with its own interest or obligation cannot resolve the matter through an informal instruction from the debtor to release the funds. There are exceptions, though in practice they tend to confirm the rule.

The statute permits an adverse claimant to intervene and have rights determined through the procedure it references. The file rarely arrives in the order counsel would prefer.

Do not promise the same funds in a settlement while their ownership or availability remains contested.

Keep the response deadlines with the court papers. A discussion about resolving the debt does not create an extension to answer the turnover request, though negotiation remains available while the response is prepared.

Holder Communications and Records

Rarely does a holder’s summary capture the legal basis. Ask for the complete notice or process the holder received, because a statement that funds are frozen may omit the stage of the matter.

Record whether money remains held or has been transferred. Retain each version of an accounting supplied during the proceeding, so a later settlement credits amounts received without reliance on an estimate.

Resist the urge to instruct the holder to move funds in disregard of process. Steps you take, or do not take, in the first days after service shape the options counsel can protect and preserve. The response belongs with counsel and the applicable order or procedure.

A holder’s request for information deserves an accurate answer.

Settlement and the Court Order

Delancey Street offers a review of the MCA obligation for owners facing a judgment with property in the hands of another, and a Delancey Street review of MCA settlement options can provide a starting point for negotiation. Delancey Street is a settlement company, not a law firm; litigation and ownership disputes require independent counsel.

The federal courts’ explanation of Chapter 11 describes a separate court process with an automatic stay subject to limits. Private negotiation creates no such protection, and settlement talks do not pause the turnover timetable.

Confirm the scope and fees of any engagement. No provider can ensure acceptance or make disputed property available by describing it as settlement funding; the source of payment must be established.

The settlement should state what happens to the turnover request and any existing order, identify the remaining payment and credit funds collected through the proceeding. A creditor that seeks property in the hands of another must establish the right it asserts. The owner answers that precision with records of equal precision, and the file that results should be legible to someone who opens it after the participants have moved on.