A worst-case scenario for the winning party in a civil lawsuit, known as the judgment creditor, is to come up against a judgment debtor who claims to be judgment-proof. Why? Because getting money from a judgment-proof debtor is like getting blood from a stone. But a debtor claiming to be judgment-proof might not actually be so.
This is one of the big reasons organizations like Judgment Collectors recommend bringing in a specialized collection agency to help recover a monetary award. Judgment Collectors is based in Salt Lake City, Utah, and works with clients in nearly a dozen states.
Judgment Collectors experts say that legitimately judgment-proof debtors exist. But they also say that it is not unusual for debtors to deliberately attempt to hide their assets so that they appear judgment-proof when they really are not. It’s an untenable situation for debtors because deliberately hiding assets to avoid payment is against the law. But if a creditor does not know how to find hidden assets, a debtor could get away with it.
What It Means to Be Judgment-Proof
Being judgment-proof means a person’s income and assets are practically unreachable and/or exempt under state law. For illustrative purposes, here are a few examples:
- Wages – A debtor’s wages are so low that garnishing at the standard rate of 25% of his disposable income would yield very little with each paycheck. Therefore, wage garnishment is impractical.
- Cash Assets – The debtor’s cash assets are nearly nonexistent. There is not enough in his bank account to make a rid of garnishment worthwhile.
- Personal Property – Nearly all the debtor’s personal property is exempt from liens and writs of execution.
In essence, a judgment-proof debtor doesn’t own any cash assets or property that could practically be leveraged for payment. Being judgment-proof is a factual financial condition. However, it is not a legal status. This means a debtor cannot simply declare himself judgment-proof, thereby forcing the creditor to cease collection efforts.
Judgment debtors are also not allowed to conceal or transfer assets in order to avoid collection. Doing so is a violation that could result in fraudulent transfer claims, sanctions, contempt of court, and even criminal charges.
How Debtors Try to Hide Assets
Even though it’s illegal, debtors tried to hide assets, nonetheless. Sometimes they do so on the advice of their attorneys; other times they do it on their own. The question at this point is, how? Here are just three examples:
- Moving Property – Personal property, like jewelry and collectibles, might be moved to a friend a relative’s house. An especially nervous debtor might ship personal property out-of-state.
- Title Changes – Debtors sometimes transfer title assets to friends and family members. Such assets can be anything from real estate to titled vehicles. Transferring title essentially transfers ownership.
- Shell Arrangements – When debtors are businesses or business owners, they sometimes create shell companies to which they transfer assets. More creative debtors might even filter cash assets through a shell organization.
The one thing these strategies have in common is that they can be reversed. If a creditor can uncover such fraudulent behavior and demonstrate it to the court, the court can usually undo the transactions. Hidden assets are then available for collection efforts.
It Almost Always Fails
The takeaway in all of this is that attempting to hide assets to avoid judgment collection almost always fails. Between court-driven discovery tools and the investigative skills of a trained professional, it is nearly impossible for a debtor’s assets to remain hidden forever. They will be found. And when they are, they will be subject to collection efforts.
