He is trying to get out of his personal debt judgment by starting a corporation? How can I collect on his corporation?

Asked almost 2 years ago - Pleasanton, CA

He says he will start a corporation and put all of his assets in the name of the corporation so that I can't collect any money judgments on him. Is there a way to collect from his corporation? He may try to set up a trust also or some other sort of 3rd entity to try to prevent me from collecting a judgment. How could I get around this?

Attorney answers (3)

  1. David Percy Hall

    Contributor Level 4

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    Answered . To answer your question, I am assuming you already have a judgment. There are two basic methods to collect on a judgment in this situation.
    The first method is a fraudulent transfer lawsuit. The fraudulent transfer statute allows a court to undo a transaction so title of the property is put back into the name of the judgment debtor. In other words, any property the judgment debtor "gave" or "invested" in the corporation would be returned to him so it no longer belongs to the corporation. At that point, you can execute on the property. This method can be expensive and should be discussed with an attorney.
    The second method is a turnover order. This is a court order which requires the judgment debtor to surrender his stock in the corporation to a sheriff. From there, the sheriff will take possession of the stock, sell it at a public auction and give you the proceeds from the sale (less any fees).
    The practical effect of a turnover order is the judgment debtor will often try to pay the judgment or else the corporation will be sold out from under him. While this a simpler method than the fraudulent transfer, there are certain procedural steps which must be followed. Again, an attorney should be consulted.

  2. Michael Charles Doland

    Contributor Level 20

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    Answered . There is a concept called "fraudulent conveyance" which may prevent someone form doing exactly what you are describing (transferring their property to make themselves judgment proof). The person sounds like a total jerk, and thank goodness they usually end up outsmarting themselves. Find a good local business litigator, have him/her review your documentation, and proceed.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may... more
  3. Christian Frederick Paul

    Contributor Level 13

    3

    Lawyers agree

    Answered . In addition to what Mr. Hall and Mr. Doland have said, I would add that one way to enforce a judgment against a person who has stock in a corporation is to get a charging order issued by the court and served on the corporation.

    In theory, the corporation must pay over to the judgment creditor anything that it would have paid to the judgment debtor, or be liable for the amount paid to the judgment debtor instead. In practice, when the corporation is wholly owned by the judgment debtor, what you get is nothing, and you end up enforcing the judgment against the person's own assets--often, what he or she received from the corporation.

    Another possible route would be to get the judgment amended to include the corporation as a judgment debtor, on the theory that it is the alter ego of the human who owns it. In this case, you have his own words that he intends to use a corporation as his alter ego--I just hope he also put it in writing, such as a letter or an email, or at least someone else heard him say it, so you can prove it to the court.

    A visit with the right attorney could be very helpful to you. Good luck.

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