• Anthony A. Garcia

Avoiding Your Debts: A Cautionary Tale of Financial Mischief Gone Awry

When faced with a debt you do not want to pay, one thing you should not do is ignore it. Oftentimes you may be able to negotiate an affordable payment schedule or even a reduction in the total amount of the debt with your creditor, which is one thing an attorney can help facilitate. You could even file for Bankruptcy if the pressure of your debts is too much to handle and you otherwise qualify for a Bankruptcy proceeding. The last thing you should do is try to hide your assets so that the creditor has nothing to collect on. While you may have heard about such maneuvers in your favorite white-collar TV thriller and thought to yourself, "wow, that seems so clever," in reality... it's not.

For those people thinking about trying something fancy to rip off your creditors, let me share with you a story about how my firm helped turn what was originally a $300 debt into a $24,000 judgment that we successfully collected for our client, the creditor. Our client (let's call her Jane), had been employed as a sales person by a small business in her area. Because of a dispute Jane had with her boss (let's call him Brad), Jane quit her job, and the relationship between Jane and Brad soured. Jane later demanded a $300 bonus she had been promised as a result of her efforts bringing in customers for Brad's business.

Brad, upset with how Jane left the business, refused to pay. Jane, on her own, filed a dispute with the Colorado Department of Labor which conducted an investigation and discovered that Brad's business had actually been underpaying Jane and had not been paying her for the overtime she worked. Almost a year later, Brad's business, which could have gotten off the hook by paying Jane the $300 she was entitled to (even though Brad was upset with her), was slapped with penalties and an award payable to Jane in the amount of roughly $3,000.

At this point, Brad should have done the right thing, set his personal feelings against Jane aside, and had his company pay the $3,000 to Jane so they could both move on with their lives. Instead, Brad thought he would try and be clever. Brad thought he could hide the business' money so that Jane couldn't reach any of it. Brad made a bad mistake.

When it became clear that Jane was entitled to receive the $3,000 in back-pay and penalties, Brad arranged to "sell" the business to another business he claimed was actually owned by one of his other employees (let's call her Karen). The new business' name was slightly, but not much, different than the original business name; the new business operated from the same exact location as the original business; the two business had the same phone number listed on their respective websites; and Brad was still heavily involved in its operations, though his exact ownership situation was unknown. When Jane forced Brad to respond to questions in Court about the original business' assets, Brad had the temerity to say that the business had no assets and, in fact, the business owed Brad over $150,000 in "backpay." This attempt to hinder a creditor's ability to collect is a classic example of something known as a "fraudulent transfer," among other things.

Many states, including Colorado, have powerful laws enabling creditors to investigate, chase, and freeze assets that have been fraudulently transferred, no matter whose hands those assets are in. Furthermore, when a creditor is forced to pursue fraudulently transferred assets, the law in Colorado generally permits a creditor to recover attorney fees as damages. When Jane became frustrated at Brad's recalcitrance and obvious financial mischief, Jane reached out to my firm. We immediately filed a fraudulent transfer lawsuit against Brad, Brad's old business, Brad's new business, Karen, and another one of Brad's business partners.

My firm reached out to Brad several times to try and settle the case for a reasonable amount, but Brad believed himself to be much more cunning than he actually was. He threatened to file Bankruptcy numerous times, repeatedly insulted me and Jane, withheld important financial documents, and refused to even consider the possibility of cutting his losses in the face of accruing attorney fees and costs we explained he would be responsible for.

Eventually, Brad, both businesses, and Karen chose to ignore the fraudulent transfer lawsuit, and a default judgment was entered against all of them for the total amount of the Department of Labor award, accrued interest, attorney fees, and costs. That amount was a little more than $24,000!

Now, at this point, Brad and Karen must have believed Jane's judgment was worthless since they had been refusing to identify any of their available assets. Little did Brad and Karen know that we had a trick up our sleeve. Jane recruited a friend of hers to go to Brad and Karen's business and pay for services with a personal check. After a nerve-wracking few days Jane and I learned that her friend had successfully paid the business a small amount with a personal check. When Jane's friend received her bank statement, she asked her bank to trace to which bank the personal check was deposited. Voila!

With that critical information in hand my firm was able to garnish and freeze the business' operating bank account for the entire amount of the judgment. In the month following the bank freeze Brad and Karen tried desperately to convince the Court that they had not been purposefully ignoring the Complaint (even though they had been) and that the bank had somehow confused the business' bank account with someone else's account (very unlikely). Thankfully, the Court saw through Brad and Karen's flimsy excuses and permitted Jane to recover the full amount of her judgment from the business' bank account. A few weeks later Jane had a check in hand for the full amount of her damages, and she finally was able to put the unpleasant years chasing Brad behind her. What started out as a mere $300 debt turned into a $24,000 successful recovery.

The moral of the story is two-fold: don't ignore judgments, and don't try to hide assets from creditors. We will find them.

If you are a creditor who suspects your debtor may have fraudulently transferred assets to prevent you from recovering on a debt, please feel free to contact my firm to schedule a free consultation.

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