Collecting debts from businesses can be a challenging task. It requires a business litigation attorney in most cases and/or filing for bankruptcy. These actions can complicate matters further, particularly when such claims are fraudulent.
Under these circumstances, legal intervention may be necessary to track down assets or secure payments.
Using Bankruptcy to Avoid Debts
After a business owner files for bankruptcy and a court confirms the plan to discharge the business’s debt, the owner is free to start a new business. However, it is fraudulent to file for bankruptcy with the intention of avoiding debts by restarting essentially the same business. In these cases, creditors can typically resume efforts to collect debt from the new business.
Other Fraudulent Actions
Similarly, business owners who give away or sell assets for less than their fair market value to avoid debt payments may be committing fraud. For example, a business owner might attempt to transfer ownership of a business or property to another person or entity without telling creditors.
Debtor actions such as concealing a transfer of assets, transferring assets right after incurring a debt, or retaining some sort of control of transferred assets are examples of “badges of fraud,” which courts look to in determining whether the debtor intended to evade creditors. State laws, including Oregon and Washington, further prohibit such actions under their respective Fraudulent Transfer and Conveyance acts. If a court determines that the transfer was fraudulent, it can unwind the transaction, award damages, and provide other relief allowing the creditor to collect payment.
Collecting Debts, Recovering Losses
Creditors should be thorough and diligent when attempting to collect debt from an insolvent business or party claiming to have no assets. It may be possible to track down hidden or undervalued assets or apply a lien against a property. Such actions can prevent fraudulent transfers of assets and allow a creditor to collect payment.
If traditional collection efforts fail, a creditor who is unable to recover payment as a result of fraudulent conveyance or transfers may be able recover losses by pursuing legal action. A consultation with an experienced business litigation attorney can help determine the best course of action to collect your unpaid debts.