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Insolvency of Debtor

Insolvency of debtor is one of the exceptions to the general rule that equity will not enforce a demand by creditor’s bill until a judgment has been obtained and an execution issued there under and returned unsatisfied or at least partially unsatisfied.  The courts are divided on the issue as to whether a creditor must reduce his or her claim to judgment, in order to maintain a creditor’s bill, when the debtor is clearly insolvent.  One view is that the recovery of judgment against an insolvent debtor is required and that it cannot be considered useless, since it establishes the creditor’s claim.  On the other hand, it is also said that a creditor should not be required to procure a judgment upon which execution must prove fruitless, that it may be otherwise satisfactorily proved to the court that the debtor has no sufficient property on which levy can be made by legal process, and that the creditor should not be prejudiced in the enforcement of his rights by useless delay.

In some cases the courts have held that the insolvency of a judgment debtor renders the issuance of execution and a return thereof unnecessary as a condition precedent to the filing of a creditor’s bill, since insolvency may be shown by competent evidence other than that afforded by an execution issued and returned unsatisfied.  On the other hand, it is also argued that the best evidence of the judgment debtor’s insolvency is that afforded by the issuance and return of an execution unsatisfied, and where such evidence is available none of a secondary nature will be considered.

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