Difficulties Collecting Judgements Against Companies
When you go into a business law case, your attention is often on whether or not you can win the case, or how much you stand to be awarded. We often don’t look past that to an equally important question: even if you win, will you ever collect?
Unlike in liability and injury lawsuits, where there is often a source of insurance that is there to ensure that judgments get paid, in business law cases, this often is not the case. And in your lawsuit, you aren’t allowed to do discovery to see if the other side has money or assets to satisfy a judgment, before the judgment is actually entered.
Just a Look Around?
You can use the “eye test,” which is just looking and seeing that a business has cars, employees, or equipment, and assume that the company has money to pay a judgment. But that can be misleading; much of the property you see may be encumbered by liens, or have little or no value.
Worse, many smaller businesses, which have debt and aren’t doing well, may opt to just let the judgment go, or else, to just close the company and let the creditors go after them.
What About the Owners?
In some cases, the personal assets of the owners of the company can be reached, but that largely depends on whether personal and business assets have been commingled; that is, whether the company is just an “alter ego” of the company owners, individually.
Are There any Advantages?
One good thing about collecting a judgment against a company, is that the company does not have the same collection protections as individuals do. So, for example, a company doesn’t have the ability to claim head of household, or a homestead exemption, to avoid collections the way an actual person does.
Another benefit is that bankruptcy generally doesn’t help businesses, because at least in a Chapter 7 bankruptcy, corporate debts are not discharged the way they are when a person files for Chapter 7. That means that the business may be more inclined to pay your judgment.
Businesses also may be more likely to have continuing income. When a person isn’t doing well financially, their situation likely won’t turn around very quickly. But a business can suddenly have a good month, or something can happen causing business to skyrocket, suddenly giving you a deeper pocket to collect your judgment against.
One good way to avoid the problem of collecting a judgment against a company is to ensure that people who sign larger contracts with your business, sign a personal guarantee. This allows you to collect both against the company and the owner or manager, individually, in the event a judgment is entered.
Of course, if you’re already in litigation, or have obtained a judgment, it’s too late for that.
Getting a judgment or collecting on that judgment? We can help from start to finish. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today.