We design, form and service asset-protected LLCs, corporations, trusts and family limited partnerships
Creditor Protection
If you cannot pay your debts and you are unable to negotiate the debt down to a level that you can handle, then the creditor will most likely obtain a judgment against you.
Once the creditor has the judgment, if you have assets that they can attack, then they will simply attach those assets. That means they now own them or have liens against the assets. Creditors are also aggressive about garnishing wages and all states except Pennsylvania, North and South Carolina, Florida and Texas allow generous percentages of attachment of your W2 wages.
What Is A Voidable Transfer of Assets?
A voidable transfer is transferring or protecting assets with the intention of “hindering delaying or defrauding” your creditors. If a transfer is deemed voidable, the court will unwind it.
Asset protection plans that are structured and implemented years in advance of need will withstand any creditor attack. But, they must be set up before a problem arises. If you set up a plan the day after a judgment, then the plan is of no value. It must be set up before a problem arises. In some cases, the court may apply the badges of fraud in determining if the transfer was fraudulent. It is difficult to prove your intent when you establish an asset protection plan or estate plan. The badges of fraud are used to try and sort things out.
When financial transactions hide assets the subject of a debt collection, divorce, or bankruptcy case, the court looks for these badges of fraud. The badges of fraud for voidable asset transfers are:
- A Close Relationship Between The Parties
- A Transfer Outside The Ordinary Scope Of Business
- Inadequate Consideration
- Knowledge Of A Creditor’s Claim
- Retention Or Control Of The Property
If the court looks at the above and decides that the badges of fraud apply, then they may reverse the transfer and put assets back where they were beforehand so that the creditor can attach the asset.
How to Make your Creditor Cry!
What if your assets are in a Limited Liability Company, Family Limited Partnership, or asset protection trust? Can a creditor still attach them? Usually not. If you have properly set up an asset protection program in advance then your creditor, as one commentator put it “can just sit down and cry”. They can try to go back to court and get what is called a charging order against your interest. But, few bother. A charging order allows them to get any distributions made to you. But, if no distributions are made, but profits are realized, then the creditor can end up having to pay income taxes on money he never got as a result of the charging order.
Can you still protect me if I am already in default?
Asset protection options are extremely limited and difficult if you wait to get protection until after you are already in default to your creditors. One possible solution can be found in the Xonics case. In that case, it was determined there may be circumstances where you can protect assets after a lawsuit. It would require your attorney to look at the lawsuit, the amount you are being sued for, and the actual settlement that is likely to be reached. He can take into account insurance proceeds, and any other elements that he reasonably feels may lower your ultimate liability. Then it may be possible for you to protect anything over and above the number he comes up with.
Call us for details.