The Law Offices of Ronald P. Slates, P.C.The Law Offices of Ronald P. Slates, P.C.2023-12-13T04:02:19Zhttps://www.rslateslaw.com/feed/atom/WordPress/wp-content/uploads/sites/1403981/2020/02/cropped-favicon-32x32.pngOn Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=498872023-05-17T21:49:35Z2023-05-17T21:49:35ZIntroduction: The Doctrine of Alter Ego and Federal Bankruptcy Preemption
Piercing the corporate veil is a poetic term for an attempt by a creditor to legally prove that a corporate entity lacks a separate identity from its owner or principal.
In Chapter 7 or Chapter 13 bankruptcy matters, it is sometimes necessary to prove that an individual filing for bankruptcy is a mere “alter ego” of a corporate entity.
This may be necessary in order to either recover assets that have been fraudulently transferred from the bankrupt individual to the corporation or to prove bad faith in a motion to dismiss the bankruptcy case.
Chapter 7 and Chapter 13 bankruptcy are forms of bankruptcy that allow individuals acting in good faith to obtain a Federal injunction known as a discharge that relieves them of the legal obligation to pay most of the debt owed prior to the filing of the bankruptcy case.
Bankruptcy is a Federal legal process.
That is, it operates under a Federal statute called the U.S. Bankruptcy Code that preempts state law in terms of the question of whether or not a pre-bankruptcy debt is owed and whether or not a judgment ordered by a California state court may be executed.
However, the Bankruptcy Code does not answer every conceivable legal question that may arise in a bankruptcy proceeding.
When an issue that is not preempted by the Bankruptcy Code arises in a bankruptcy proceeding, the U.S. Bankruptcy Court considering the matter will turn to the law of the state in which the bankruptcy case was filed for guidance.
What, then, does California law have to say about piercing the corporate veil?
And when is the doctrine of alter ego useful for a judgment creditor in a Chapter 7 or Chapter 13 bankruptcy case?
Piercing the Corporate Veil in CaliforniaAs we have written before here, California courts have elaborated a two-part test for use in considering whether or not to allow a creditor to pierce the corporate veil in a collection effort.
This test requires the creditor pursing the assets of an individual debtor to prove that:
There is a “unity of interest and ownership” between the debtor and the corporate entity; and
That it would be unfair if acts in question are treated as those of the corporation alone.
This is obviously a fairly vague and elastic “test.”
California courts have thus also enumerated a series of factors for use in determination of whether or not this Alter Ego Test is met. Some are more or less useful to the pursuit of the corporate assets of individual debtors.
These factors include:
The commingling of funds or assets;
The treatment of the assets of the corporation by the individual as his or her own;
The failure to obtain authority to issue stock;
Representations by the individual that he or she is personally liable for the debts of the corporation, and/or the failure to maintain minutes or adequate corporate records and general confusion of the two parties;
Identical equitable ownership in two entities;
The use of the same business or office location for two entities or the same directors or officers;
The failure to adequately capitalize the corporation;
The use of the corporation as a mere shell for the single business venture of the individual or another corporation;
The concealment and misrepresentation of the identity of the responsible ownership of the corporation;
The disregard of legal formalities and failure to operate the corporation at arm’s length;
The use of the corporate entity to procure labor or services for the individual or another entity;
The diversion of assets between the parties to the detriment of creditors, or the manipulation of assets and liabilities to concentrate them in one entity;
The contracting with another with intent to avoid performance by the use of a corporate entity as a shield against personal liability;
The creation of the corporate entity to transfer existing personal liability.
This is a non-exhaustive list, and all of these factors needn’t be considered by a California court in any one case. See Associates Vendors, Inc. v. Oakland Meat., Co, 210 Cal. App. 2d 825 (1962).
These “unity of interest” factors essentially represent the idea that a court may examine a variety of circumstances in determining whether or not corporate assets are reachable by an individual’s personal creditors.
The 2nd component of the Alter Ego Test reinforces the underlying proposition that the piercing of the corporate veil is limited to those cases in which the individual (or parent corporation) has acted in bad faith.
The concept of “bad faith” is one that appears nowhere in the U.S. Bankruptcy Code but is often discussed in bankruptcy case law.
An individual debtor who happens to trip over one too many of California’s alter ego factors may be found by a Bankruptcy Court to exhibit bad faith.
So when is it useful in a Chapter 7 or Chapter 13 bankruptcy case for a creditor to attempt to pierce the corporate veil?
Creditor Standing in California Bankruptcy Cases
The U.S. Bankruptcy Code does not address or govern the requirements for formation of a corporate entity in California.
As noted above, it therefore California law that will govern a creditor’s action to determine whether an individual debtor or a parent or subsidiary entity is a mere alter ego.
Although a bankruptcy judge will render a decision regarding a creditor’s attempt to pierce the corporate veil in a bankruptcy proceeding, California state law provides the relevant analysis.
This is the alter ego or unity of interests test described above.
However, the extent to which creditors can litigate this issue in a bankruptcy case varies depending upon what Chapter bankruptcy has been filed.
In a Chapter 7 bankruptcy proceeding, the Chapter 7 Trustee assigned to the case is the sole actor empowered to recover any assets of the bankruptcy estate created with the filing of the case. Likewise, the Chapter 7 Trustee is solely empowered to unwind or avoid fraudulent transfers or so-called preference payments.
Creditors of a Chapter 7 debtor are limited to filing motions denying the debtor’s discharge entirely or denying the dischargeability of the specific debt held.
A creditor may also provide information to the Chapter 7 Trustee regarding possible fraudulent transfers or other “bad faith” debtor activity for the Trustee’s consideration as to his or her own next steps in the case.
However, any alter ego allegations against the debtor initiated by a creditor would occur within the context of a motion or adversary proceeding seeking denial of discharge or non-dischargeability of the specific debt in question.
A piercing of the corporate veil in a Chapter 7 bankruptcy, in short, would be attempted attendant to a claim that the debt owed by the bankruptcy debtor is one that arose fraudulently.
Debts incurred fraudulently are not dischargeable in bankruptcy.
In Chapter 13 individual and Chapter 11 corporate reorganization bankruptcies, on the other hand, the debtor filing the bankruptcy case remains in possession of the assets of the bankruptcy estate.
Creditors retain standing to file motions for turnover of assets as well as motions or adversary proceedings to deny discharge or for non-dischargeability orders in Chapter 13 and 11 bankruptcies.
Conclusion
A motion for an order of non-dischargeability is the course of action in a bankruptcy proceeding most likely to succeed.
The effect of such an action will essentially be to remove the creditor’s collection efforts from Federal bankruptcy court back to state court, where the Bankruptcy Code’s mandated presumption in favor of the dischargeability of debt is not an issue.
If the matter has not already been adjudicated in California state court and the question of alter ego remains pertinent, the Bankruptcy Court’s order will estop the debtor’s arguments against a unity of interests in that forum.
If the matter is post-judgment in state court, the creditor will be able to resume execution of its state court judgment once the bankruptcy case is dismissed or administratively closed by the Bankruptcy Court.
In any instance, the assistance of a collection attorney experienced in state and Federal Bankruptcy Courts will be invaluable.
Contact collection attorney Ronald P. Slates today to discuss your collection matter.]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=498852023-05-17T21:44:20Z2023-05-17T21:44:20ZHow Do Commercial Debt Collection Agencies Have the Right to Collect My Debt?
Debt collection companies are working on behalf of the creditor who loaned you the money. Debt collection is regulated by law and allows for creditors to either sell your debt to a collection agency or hire the agency to collect the debt on their behalf. Although the collection agencies have the right to collect the debt there are some protections offered to debtors. It’s important to know your rights and consulting with a debt collection attorney will ensure that you’re being treated fairly.
How Do Commercial Debt Collection Agencies Collect Debt?
It’s no secret that debt collection agencies are aggressive. If you’ve ever had outstanding debts, you’ve surely been victim to incessant phone calls regarding payment of your debt. That’s just one way collection agencies go about collecting on delinquent accounts.
You may also receive certified demand letters from the collection agency demanding payment. Most times, the collection agency’s initial correspondence with your business will come in the form of a demand letter. This will be a formal letter letting you know they are responsible for collecting on the debt. The letter will most likely provide you with information regarding the amount of your outstanding balance along with a due date.
If the collection agency has exhausted its efforts with trying to collect from your business, they may begin judicial proceedings to collect the debt in court. This is where having an experienced collections attorney on your side will be critical.
What Should I Know When Dealing with Commercial Debt Collection Agencies?
If you’re being contacted by a debt collection agency for commercial debts, it’s important to become organized. First, you will need to determine if their claim is valid. Search your records and make sure that the debt belongs to your business. If the debt doesn’t belong to your business, you can raise a dispute with the collection agency. However, if the debt does belong to your business and their claims are valid it will be best to pay the balance of the debt. Keep in mind that if you ignore the debt for too long you may be summoned to court. And remember you can always try to negotiate with the collection agency to pay a lower amount or have the debt paid for in manageable installments.
Conclusion
Receiving endless calls from debt collection agencies is an unnecessary stressor. If you’re being pursued by a commercial debt collection agency for unpaid debts, it’s important you become informed and know your rights. It’s always best to face collection agencies head-on to avoid more trouble down the road in court.]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496902023-04-04T14:57:06Z2023-04-04T14:57:06ZWhat is the legal doctrine of “alter ego” and when does it apply?
Alter ego applies when you can establish an individual or debtor entity is the same as a related corporation. The debtor may try to use this corporation as way to shield their assets. When the creditor can establish that the legal theory of alter egos applies, they can bypass the shield, pierce the corporate veil, and hold that related entity responsible for the debt.
How can I establish that the related entity is an alter ego of the debtor?
The courts provide guidance on what you will need to establish that a related entity is, in fact, an alter ego of the debtor. To move forward with the claim, you will generally need to establish the following:
Closeness. First, that the debtor and the related entity are intertwined, that their interests and ownership are not separate. Factors that can help establish this claim include stock ownership, use of business location, commingling of funds and a disregard for corporate formalities.
Equity. You will also need to show that if the court allows the two to remain separate it will promote an injustice or fraud.
Finally, you will also need to show that because of this connection, the alter ego corporation was represented in the previous lawsuit.
How do I move forward to hold the alter ego corporation financially responsible for the debt?
Once you have a successful judgment you can file a motion with the court to amend the judgment and include the alter ego corporation. If approved, you can then move forward with collection efforts against this other entity.
It is important to note that actually establishing these factors and building a successful motion is not an easy feat. Creditors who believe a debtor has attempted to shelter assets in this manner are wise to reach out to legal counsel experienced in this niche area for assistance.]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496452022-08-01T05:55:49Z2022-08-01T05:50:59ZWhat costs are recoverable when enforcing a California money judgment?
Under California law, the judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. California Code of Civil Procedure §685.070 specifically allows the judgment creditor as a matter of right to collect the following costs:
Statutory fees for preparing and issuing, and recording and indexing, an abstract of judgment or a certified copy of a judgment;
Statutory fees for filing a notice of judgment lien on personal property;
Statutory fees for issuing a writ for the enforcement of the judgment to the extent that the fees are not satisfied pursuant to Section 685.050;
Statutory costs of the levying officer for performing the duties under a writ;
Statutory fee of the levying officer for performing the duties under the Wage Garnishment Law;
Reasonable and necessary costs incurred in connection with debtor’s examinations and certain other enforcement proceedings.
There are often other “reasonable and necessary” enforcement expenses that are left to the court’s discretion and the judgment creditor must file a noticed motion with the court to determine whether these costs will be allowed.
When is a Judgment creditor is entitled to post-judgment attorneys’ fees and costs?
A judgment credit is entitled to post-judgment attorneys’ fees and costs if the underlying Judgment included an award of attorneys’ fees. A creditor must file a noticed motion within two years of incurring said attorneys’ fees and costs.
Adding post-judgment attorneys’ fees and costs is part of an overall strategy that I recommend to gain additional leverage over the Judgment debtor and demonstrate that you are aggressively enforcing your Judgment.
“The judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. Attorney’s fees incurred in enforcing a judgment are not included in costs collectible under this title unless otherwise provided by law. Attorney’s fees incurred in enforcing a judgment are included as costs collectible under this title if the underlying judgment includes an award of attorney’s fees to the judgment creditor pursuant to subparagraph (A) of paragraph (10) of subdivision (a) of Section 1033.5.” See CCP §§ 685.040.
“The judgment creditor may claim costs authorized by Section 685.040 by noticed motion. The motion shall be made before the judgment is satisfied in full, but not later than two years after the costs have been incurred. The costs claimed under this section may include, but are not limited to, costs that may be claimed under Section 685.070 and costs incurred but not approved by the court or referee in a proceeding under Chapter 6 (commencing with Section 708.010 ) of Division 2.” See CCP § 685.080(a).
For more information on the commercial collection process, contact the [nap_names id="FIRM-NAME-3"].]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496392022-08-01T05:34:12Z2022-08-01T05:32:24ZWhat Is Interest on Court Judgments?
The Texas Legislature has defined “interest” as “compensation for the use, forbearance, or detention of money.” TEX. FIN. CODE § 301.002(a)(4). Many times, with civil lawsuits, you will hear such terms as “just compensation” for the plaintiff, or an award of money which is designed to “make the plaintiff whole.”
Where the plaintiff prevails in his or her lawsuit, interest is designed to make the plaintiff whole for the full value of money he or she should have had since a wrong was committed. This is known as “pre-judgment interest.”
On a related note, “post-judgment interest” covers the period from when the plaintiff wins his or her lawsuit, to when they collect their compensation. Because collecting a judgment in Texas can be difficult, most lawsuits will involve a defendant having to pay both kinds of interest – pre-judgment interest and post-judgment interest – on court judgments.
Although we discuss here mostly what happens in State courts, we want you to also be aware that there is interest applied in the federal courts. Federal statute 28 U.S.C. 1961 governs the federal post-judgment interest rate on a money judgment for civil cases in a district court (there is no specific federal judgment interest rate for pre-judgment interest, though courts have upheld such interest being added to a judgment).
In California, the amount required to satisfy a Judgment is the total amount of the Judgment as entered or renewed plus post-judgment costs; plus post-judgment interest; minus payments received. See CCP §§ 695.210; 685.090 (re: post-judgment costs); 685.010-685.030 (re: post-judgment interest).
The San Diego County Superior Court has a Judgment calculator that can be assessed online at https://ijcalc.sdcourt.ca.gov/.
Post-judgment interest accrues from the date the Judgment is entered.
The post-judgment interest rate is 10 percent per annum in California. In comparison, the federal post-judgment interest rate is set by the weekly average of 1-year Treasury yield for the preceding week in which the Judgment was entered. See 28 U.S.C. 1961. Each of the four district courts for California have links or tables regarding post-judgment interest rates on their websites.
For more information on commercial collections and Judgment enforcement, contact the [nap_names id="FIRM-NAME-3"].]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496372022-08-01T05:35:38Z2022-08-01T05:01:26ZFill out and send the creditor a Judgment Debtor's Statement of Assets (Form SC-133)
Once the judgment against you is final and you do not pay voluntarily within 30 days, you are legally required to fill out a Judgment Debtor's Statement of Assets (Form SC-133PDF file type icon) and send it to the creditor. In many local courts, the court clerk will mail a blank Form SC-133 to you with the original judgment.
If you do not send Form SC-133 to the creditor, he or she may do a debtor's examination to get information about your property, work, bank accounts, and other assets that the creditor can go after to get paid. Read Ways to Collect From the Debtor to learn about what the creditor can do to collect the judgment if you do not pay voluntarily.
If the creditor takes steps to collect the judgment, there may be something you can do. Get help from the small claims advisor. And get more information by clicking on the topic below that applies to your situation:
After levying upon a Judgment debtor’s interest in property, a Judgment creditor may be served with a Claim of Exemption. These exemptions are listed on Form EJ-155 and the exemption amounts on Form EJ-156.
Generally, an exemption is waived if not timely filed. See CCP § 703.030(a). A creditor may oppose an exemption claim.
The exemption amounts are adjusted every three years. The next adjustment will be made on April 1, 2022.
The most commonly claimed exemptions are:
Car(s) are exempt in the aggregate amount of $3,325.00. See CCP § 704.010. If the debtor owns only one car, the sale proceeds are exempt in that amount without making a claim.
Furniture and personal effects are exempt in any amount if they meet the “ordinary and reasonably necessary” test. However, the furniture and personal effects must be located at the debtor’s principal place of residence and personally used. See CCP § 704.020.
Bank account(s) are exempt in the aggregate amount of $1,826.00 without making a claim. The exemption amount is adjusted annually. The next adjustment will be made on July 1, 2022. See CCP § 704.220.
Jewelry, heirlooms and works of art are exempt in the aggregate amount of $8,725.00. See CCP § 704.040. An item may also be claimed under the furniture and personal effects exemption.
For more up to date information on the commercial collections process, contact the [nap_names id="FIRM-NAME-3"] today.]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496352022-08-01T04:46:53Z2022-08-01T04:46:53Z
The title of the court where the judgment is entered and the cause and number of the action.
The date of entry of the judgment and of any renewals of the judgment and where entered in the records of the court.
The name and address of the judgment creditor and name and last known address of the judgment debtor.
A statement describing the right represented by the judgment that is assigned to the assignee.
The name and address of the assignee.”
Be sure to serve a copy of the Acknowledgement to the Judgment debtor.
For more information on commercial collections and Judgment enforcement, contact the [nap_names id="FIRM-NAME-3"] today.]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496342023-02-23T06:56:08Z2022-03-16T14:48:15Z
Levy a bank account including a safe deposit box;
Levy a vehicle; and
Serve a third-party debtor examination.
Now, what happens if the judgment you want to enforce is out of state?
A Judgment entered in another state, a Sister-State Judgment, may be enforced in California. If a creditor previously obtained an out of state judgment, and now wishes to collect it in California, then the judgment must be registered in California courts. A reason for this is that the California Sheriff’s Department is only authorized to enforce California judgments. Determining the Court If the debtor lives in California, the creditor must file the forms in the county in which the debtor lives. If the debtor does not live in California, but has assets in the state, then the forms may be filed at the county courthouse that serves the jurisdiction where the property is located.
Put simply, you must first domesticate the Sister-State Judgment. A sister-state (or “out-of-state”) judgment is defined as “that part of any judgment, decree, or order of a court of a state of the United States, other than California, which requires the payment of money, but does not include a support order as defined in Section 155 of the Family Code.” Cal. Code of Civ. Proc. § 1710.10.
To domesticate, a creditor must:
Obtain an exemplified and certified copy of the Judgment from the originating state;
Identify the specific code section that provides for post-judgment interest (specifically, the post-judgment interest rate) from the originating state;
File California Judicial Council Forms: CM-010; EJ-105; EJ-110; and
Serve the Clerk's issued copy of the Notice of Entry of Judgment on Sister-State Judgment (EJ-110) on the debtor(s) in the same manner as a Summons and Complaint.
This process can be challenging. For experienced legal guidance on collecting an out of state judgment, contact attorney Kevin Hoang at khoang@rslateslaw.com or 213-624-1515.]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496312023-02-23T06:56:58Z2022-03-16T14:38:48Zkhoang@rslateslaw.com or 213-624-1515.]]>On Behalf of The Law Offices of Ronald P. Slates, P.C.https://www.rslateslaw.com/?p=496272023-02-23T06:53:00Z2022-03-16T14:30:24Z
Locate the physical location of the car. You will also need the license plate number, VIN, make, model and color of the car.
Determine whether there is any equity in the car. The Judgment debtor may file a Claim of Exemption, and lien holders may file Third-Party Claims.
Obtain an issued Writ of Execution in the county where the car is located.
File an original, issued Writ of Execution with the Sheriff’s Department along with additional copies. Each county Sheriff will have their own specific forms and requirements. The Sheriff will be executing the levy including towing, storing and selling the car via public auction.
File Sheriff’s Instructions.
At the public auction, if you decide to bid on the car, you will need certified funds to cover the “minimum bid.” However, as the Judgment creditor, you can “credit bid” over the minimum bid up to your Judgment amount.