So much misinformation on this thread. First off, IANAL, and don’t rely on what I have to say because for all you know, I’m a complete moron.
Here’s very likely what happened. Credit card company realized that Brother’s debt was not going to be recovered. Brother is in breach of his contract with the credit card company. Credit card company can now sue Brother on the debt, but credit card company doesn’t want to do this. It instead sells Brother’s debt (and the corresponding cause of action against Brother) to Collection Agency.
It’s profitable for Credit Card Company to sell Brother’s debt to Collection Agency because Collection Agency has expertise in persuading creditors to repay their debts extrajudicially (that is, without resort to judicial process). Collection Agency then begins dunning Brother, but Brother refuses to repay.
Since Collection Agency is not a secured creditor, there’s no collateral that Brother pledged to secure the loan initially given to him by Credit Card Company. Therefore, to collect on the debt, Collection Agency must resort to judicial process. (Really, many secured creditors have to resort to judicial process too – since secured creditors aren’t allowed to breach the peace when repossessing collateral, if they want to seize many kinds of collateral they have to go through the courts.) Collection Agency goes to the local courthouse and files a complaint: Debtor owes me money and there’s no legal reason to release him from the obligation. The court clerk issues a summons that goes to Brother, who ignores it. Brother does not answer the complaint. If he did answer and raised a material dispute, there could potentially be a trial on the issue. But since Brother does not answer the complaint, the court gives Collection Agency a default judgment, which is as effective as any other judgment so long as Collection Agency follows the proper procedures.
The judgment is then “docketed,” which means it’s recorded on a “judgment roll.” What happens next depends on the kind of property Brother owns: real estate or personal property. In most states, a judgment alone establishes a lien on a debtor’s real property. A judgment lien doesn’t usually give the creditor the right to immediate possession of the debtor’s real property; rather, it gives the creditor a right to go after the proeprty and priority over all those who later acquire liens after the lien arises. If Brother’s property is all personal property, Collection Agency has to do more than just have its judgment docketed. The docketing only gives Collection Agency the right to obtain a writ of execution from the court clerk.
The writ of execution directs the sheriff to seize and sell sufficient property of Brother to pay the judgment entered in Collection Agency’s favor. If the property isn’t readily moveable, the sheriff will take other steps to deprive the debtor of the use of the asset and to put others on notice. For example, the sheriff might padlock Brother’s warehouse of widgets – these actions constitute a “levy” on Brother’s property. If Brother’s property are bank accounts or a stream of income like wages, then Collection Agency can reach those intangible assets using a procedure called “garnishment,” which orders the bank or employer to pay Collection Agency instead of Brother. The sheriff WILL NOT arrest Brother; we don’t have debtors’ prisons these days.
The next step for real and personal property is a state-supervised sale. Any surplus resulting from the sale after the payment of expenses and the judgment under which the property was seized and sold is distributed to any junior creditors or returned to Brother.
Since Brother is an individual, however, there will be certain kinds of property that will be beyond Collection Agency’s reach. Each state has its own list of proeprty on which creditors cannot levy. For example, in Texas or Florida, general creditors (like Collection Agency) cannot reach any of the equity a debtor has in her home. Other states have such homestead exemptions but subject them to a dollar cap. Household furnishings and tools of the trade are often protected, although there are usually dollar limits, both int he aggregate and with respect to specific types of property. State exemption laws differ dramatically both in the types of property that are covered and in how generous they are.
Federal law also limits Collection Agency’s ability to reach Brother’s assets. Teh Consumer Credit Protection Act, for example, limits the extent to which any single creditor may garnish an individual’s wages. See 15 USC sect 1673(a) (garnishment of aggregate disposable earnings limited to the lesser of 25 percent or the amount by which the debtor’s disposable earnings for a week exceed thirty times the federal minimum hourly wage). In addition, certain types of federal payments (.e.g, Social Security) aren’t subject to legal process and thus are beyond the reach of creditors. See 42 USC sect 407(a).
Brother may no longer have assets sufficient to satisfy the judgment. In many cases, general creditors like Collection AGency will just be out of luck. But if the reason Brother has no assets is because he’s given them all to Sister, this transfer will be set aside through fraudulent conveyance law. The transfer to Sister is a sham, and Collection Agency can ignore the transfer and levy on the goods in Sister’s hands as if the transfer never took place.