The voidable transfer laws in California provide strong protections against fraudulent conduct, including the disposal or transfer of assets for less than fair value. Of course, this conduct still occurs, but there will almost always be a paper trail. Finding that paper trail is just a matter of remaining diligent and knowing what legal tools are available. Fraudulent transfers are usually for little or no value. For example, if a debtor owns a $500,000 house and transfers it to an LLC for $10, the court is going to see through that, and will likely bring the house back into the individual’s title so we can levy on the property and sell it, if necessary.
Would The Court Ever Discharge Our Judgment Against A Debtor?
The only way a judgment or an amount that’s due can be discharged is through bankruptcy. This means that a debtor would need to file bankruptcy in order to obtain a discharge of the debt. There are three main types of bankruptcies: Chapter 7, Chapter 11, and Chapter 13. The most common type of bankruptcy is Chapter 7 bankruptcy, which is filed by individuals and is considered a liquidation bankruptcy.
An unsecured creditor who is trying to collect a judgment against someone who has filed for bankruptcy likely won’t be successful, because the debt will be discharged during the bankruptcy. The primary circumstance under which the unsecured creditor might be paid is if the debtor had assets that were liquidated, but this is very uncommon. The best way to avoid this situation is to move quickly to obtain a judgment.
Once we have a judgment, we can record an abstract of judgment, which liens any real property that the debtor owns. We can also file a notice of judgment lien with the California Secretary of State, which liens any personal property (e.g. cars, stocks, and tangible and intangible assets that aren’t real estate). Once we lien all of their property, we become a secured creditor. If a bankruptcy is filed more than 90 days after we record and file these liens and we’re a secured creditor, then we will be at the front of the creditor line in a bankruptcy.
If a bankruptcy is imminent and we are already dealing with the bankruptcy attorney, then we may tell our client not to waste their time by filing a lawsuit because they won’t be able to get a judgment fast enough. However, if there is just the possibility of a bankruptcy in the future and we believe we have a viable claim, then we will file a suit, get our judgment, and record those liens to protect our client. It’s critically important to change a client’s status from an unsecured creditor to a secured creditor, if at all possible.
In California, a judgment can be enforced for 10 years from the date it is entered unless it’s renewed for an additional 10-year term. It is not uncommon for people to receive a judgment, and then just sit on it. The problem is that once a judgment expires, there’s not a lot we can do to renew it. Collections are not like fine wine—they don’t get better with age. It’s better to move quickly when there is a viable claim.
If A Debt Is Guaranteed By A Third Party, Can A Commercial Collections Attorney Pursue That Party During The Debtor’s Bankruptcy?
If a corporation or an LLC files bankruptcy, the automatic stay that goes into effect only applies to the actual debtor who filed. This means that collections could continue against a third-party guarantor who did not file bankruptcy. We encourage our clients to secure personal guarantees whenever possible because it increases our leverage if there is a default. Clients should make sure that the guarantee is properly drafted so that the guarantor can’t try to use a legal loophole to get out from under it. Contracts, promissory notes, and personal guarantees should be reviewed by an attorney who is experienced in this area of the law and who can confirm that they are enforceable.
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