Professor LoPucki argues that current law cannot collapse the two entities into one for purposes of satisfying judgments, and concludes that large businesses of any type can successfully render themselves judgment-proof. While the two entities are bound together by contract, the bifurcation of assets and risks shields the business from judgment debt. An "operating entity" conducts the business activities and carries the risks of tort liability, while an "owning entity" owns the business assets. He identifies a single structure that describes virtually all judgment proofing: a division of risks of liability and assets into two or more separate entities sharing a symbiotic relationship. In this essay, Professor Lynn LoPucki revisits this issue of "judgment proofing" and responds to arguments that large businesses cannot operate in judgment-proof conditions. Or if you would prefer to email us, then please visit our contact page.In order to insulate itself against debts resulting from unfavorable judgments, a business entity may seek to operate unencumbered by significant assets. An attorney should be able to advise a debtor about his or her options in all cases.įor more information, call our law office at (617)-391-9001. There are also many public programs available that offer financial coaching and other assistance that a debtor can use to make repaying debts a bit easier. In any of these situations, an attorney can advise the best course of action. In other cases, the creditor will pursue the full amount of the debt and may even seek other compensatory damages for the costs of pursuing the debtor. In some cases, a creditor will allow the debtor to submit a one-time payment that is marginally lower than the full debt amount to simply settle the matter. In other cases, it’s best for the debtor to respond to the lawsuit and work with his or her attorney to reach an acceptable result. In some situations, it’s best to avoid responding to a money judgment and simply allow the creditor to obtain a default judgment, instead of paying attorney’s fees and other costs to handle the case. Assets may not be seized simply because a claim or debt exists, but once a lawsuit has resulted in a judgement, the judgment debtor’s assets can be seized in order to satisfy the judgment. Whether a person receives a money judgment, or encounters a money judgment later after a change in financial status, an attorney will be a valuable asset for handling the next steps. Many debtors, however, merely pretend to be judgement proof They really do have assets, but attempt to hide them. For example, if a judgment proof individual unexpectedly inherits a piece of real estate, the creditors may place a lien on the real estate to pay back the debt. Once a person’s judgment proof status changes, creditors will look for ways to secure their payments. A money judgment lasts for a long time and a creditor can appeal for a renewal on an expired judgment, so it’s never wise to assume that judgment proof status will last forever. A person’s financial situation can change, such as with a promotion, pay raise, property inheritance, or other unexpected windfall. FYI Some judgment debtors are simply collection proof, meaning. It’s important to note that judgment proof status is not permanent. This property is called exempt property because it is excluded from the execution process. Why Judgment Proof Status Isn’t Necessarily a Good Thing If the debtor’s wages do not qualify for wage garnishment, he or she is essentially judgment proof. These income sources include:įederal law also limits how much money a creditor can garnish from a debtor’s wages. Additionally, recipients of certain income sources are exempt from money judgments. An individual who works a very low-paying job would not qualify for wage garnishment. LawHelp.Org/DC provides free legal information to the public about topics of interest to low and middle income DC residents. For example, an individual who does not own real estate or have a bank account would be judgment proof. How Is a Person Judgment Proof?Ī person qualifies as judgment proof if he or she does not own any assets a creditor could seize to secure payment on a money judgment. A creditor can still obtain a money judgment against a judgment proof individual, but it will be unable to collect on the judgment. An individual who is judgment proof is not immune from debt collection. However, some individuals will qualify as “judgment proof” for various reasons. Once a creditor obtains a money judgment on an owed debt, the creditor will use whatever means it deems fit to secure payment. Creditors can use various methods to seek payment on past due debts, including real estate liens, bank account levies, and wage garnishment.
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