IF SOMEONE WHO OWES YOU MONEY DIES (Part 1 of 3)

Collecting from the Dead

Collecting a Debt When Someone Dies

If someone who owes you money dies, what should you do? I know it sounds morbid and I hope it’s not in poor taste but that could be a serious problem. Your next step depends on what you have done so far to collect. In the first of this three part series, we discuss what should be done if you have not yet sued on the debt or obtained a judgment.  (We will then cover what happens if there is a lawsuit pending and what happens if you have a judgment). You will need to demand payment against the dead person (decedent’s) estate. However, there are two very important deadlines.

The first deadline occurs after the decedent’s heirs or beneficiaries file with the court to open something called probate. A probate is a special court proceeding to make sure that a decedent’s property is distributed to his or her heirs. It also allows creditors to file claims to get paid from the decedent’s property. If the debtor’s heirs or beneficiaries open a probate estate, then any creditor only has 4 months from the date that an executor is officially appointed to file something called a “Creditor’s Claim” in the decedent’s probate. (California Probate Code section 9100(a).) If the executor accepts the claim, depending on if there are sufficient assets in the estate, the creditor could get paid. (Claims against an estate are paid in a certain order of priority. (Probate Code section 11420.) Unfortunately, general debts are paid last.) If the executor either rejects the claim or fails to do anything within 30 days, then you move to the next step — bringing a suit on the claim. That’s when you come up against the second deadline.

The second deadline is a one-year statute of limitations from the date of death for almost all claims. (CCP section 366.2). That means that if you don’t bring a suit against the decedent’s estate within one year after they die, the claim will be forever barred. That rule applies even if, had the person lived, the statute of limitations would have been longer. So, for example, if the decedent borrowed money from you under a promissory note and failed to pay, the normal statute of limitations is four years. However, if the person dies, you only have one year from their death.

As you can see, when someone who owes you money dies, you need to act quickly so that your claim for money against them doesn’t die too.

CAN A CHARGING ORDER GET ME PAID FROM AN LLC?

Charging Order?
Charging Order?

Will a Charging Order Help You Get Paid?

Clients ask us whether a charging order can help them collect on a debt from a debtor’s LLC.  The answer is: sometimes.

When starting a business, people form limited liability companies (“LLC’s”) to protect their personal assets from their business debts.  What happens, however, if there is personal debt?  Can the creditor on the personal debt recover assets or money from an  LLC in which the debtor owns an interest?

In California, creditors of an individual cannot take away the money or property of an LLC to pay off the individual’s debts.  However, a creditor can obtain a charging order. A charging order requires the LLC to pay any money due to the LLC member debtor directly to the creditor.  The creditor, however, does not have any control over the LLC.  So the creditor cannot order the LLC to disburse money.  If no distributions are made, the creditor can end up collecting nothing on their debt.

Some asset protection specialists claim that the debtor can still get money out of the LLC without having to pay the creditor by way of salary or loans.  However, when charging orders are issued by the courts, courts will often order that no salaries or loans be paid to the individual debtor or that such salaries or loans be paid to the creditor.

So, the charging order can, in effect, create a standoff between an LLC member and a creditor.  Neither has access to the money or assets of the LLC.  The more patient party — or the one less in need of money — wins.  So, for example, a real estate LLC formed to hold investment property and for which the individual member has no need for immediate cash may be less likely to settle with the creditor.  On the other hand, an LLC formed for an existing business for which several members depend on disbursements or salary to support themselves may, in fact, have an incentive to get rid of the creditor by satisfying the debt.

The law of charging orders and LLCs are necessarily complex and fact specific.  If you are owed money from a member of an LLC, you should consult with a lawyer with experience with LLCs and charging orders.

CAN A WRIT OF EXECUTION HELP ME GET PAID?

Cowboy stands at the blackboard

Cowboy stands at the blackboardWe have been asked whether a writ of execution can help a client get paid.   The short answer is, yes, a writ of execution can help you get paid sometimes.   This article talks about what a writ of execution is, when you can get it and how, sometimes, it can help you get paid.

What is a Writ of Execution?

A writ of execution is an order in a civil case.  It is made after a money judgment has been obtained against a defendant.   A writ of execution orders the sheriff of a county to take property owned by the defendant (or the judgment debtor).   The property can then be turned over to the plaintiff or, in some cases, sold.   The money from the property that is sold then is turned over to the plaintiff (or the judgment creditor).

When Can You Get a Writ of Execution?

You can get a writ of execution after you have sued and obtained a money judgment against a defendant.  You or your attorney submits an application to the clerk of the court.  If the application is properly prepared under California Code of Civil Procedure section 699.510, the clerk is required to issue a writ of execution. The writ of execution is directed to either a sheriff or a process server.   The writ of execution orders the levying officer (the sheriff or the process server) to enforce the money judgment.  (California Code of Civil Procedure section 699.520).

Limitations on a Writ of Execution

There are both legal and practical limitations on when you can use a writ of execution.  The legal limitation is that it applies to a money judgment issued in California.  Under Code of Civil Procedure section 680.270, a “money judgment is that part of a judgment that requires the payment of money.”  So, for example, if a landlord sues to evict a tenant and to recover back due rent, the landlord would obtain a writ of possession to get the tenant out of the space and a writ of execution to collect the money.

The practical limitation is that because the writ of execution is directed to a sheriff or process server, you have to know what assets the judgment debtor has for them to be able to enforce the judgment and seize that asset.   One way to do that is through your own investigation.  Sometimes you can learn about that through a judgment debtor’s examination.  Of course, the easiest thing to obtain through a writ of execution is money from a bank account   The levying officer, however, can also use the writ of execution to obtain other property such as jewelry, cars or business equipment.

How a Writ of Execution Can Help You Get Paid

A writ of execution can help you get paid if you have a money judgment, the debtor has assets and you know what and where they are.   It gives the sheriff or the process server the power to seize that asset and either turn it over to you (in the case of money) or sell it and give you the proceeds.  While there are limits, it can be a potent weapon for your lawyer to use to collect a judgment for you.

CRIMINAL RESTITUTION AND CIVIL JUDGMENTS: WHAT YOU NEED TO KNOW

Collecting Restitution

 

Collecting Restitution

Crime Victims Have Restitution Rights

Criminal Restitution: What It Is

In California, if you are a victim of a crime and you suffer an economic loss, you are entitled to recover for that loss.   (Penal Code section 1202.4.)   “Economic losses”  means a financial loss.   It includes such things as medical expenses, counseling expenses, property damage or other losses.  This could include money lost when someone defrauds you or maybe when an employee steals from you.   The person convicted of the crime — the offender — is responsible for paying the victim.   If the crime is committed by a juvenile,  a parent or guardian may also be liable.  Criminal restitution is a permanent order.  It does not expire.  It cannot be discharged through bankruptcy.  (Penal Code section 1214.)

How to Collect Criminal Restitution

If the criminal or juvenile is still involved with the criminal justice system, courts pursue the collection of criminal restitution.   If the criminal or juvenile offender is granted probation, courts can usually pursue collection of criminal restitution through local authorities.   The offender then makes monthly payments.  Those are collected by the court and sent to you.   If the offender is sentenced to the California Department of Corrections or to the California Division of Juvenile Justice, payments can be made to you from their prison wages.   This is usually at the rate of 20-50% of their prison wages.

But what if the criminal or juvenile is no longer involved with the criminal justice system?   Can you collect it on your own or with an attorney?   The answer is “yes.”

Enforcing Criminal Restitution as A Civil Judgment

A criminal or juvenile order for criminal restitution is enforceable as a civil judgment.   This means that a victim of criminal restitution has all of the remedies under law of a judgment creditor to enforce the criminal restitution order as a civil judgment.   This can include conducting a judgment debtor’s examination, wage garnishments, placing a lien on the offender’s property, having a writ of execution on the offender’s property or any kind of levy available to a creditor.   To help victims recover  criminal restitution as civil judgments, California law also permits them to obtain information about the offender’s assets by sending questionnaires and interrogatories.

Hopefully, you will never be a victim of a crime.  Hopefully, you will never have to deal with recovering criminal restitution for the economic losses caused by that crime.  However, if you do, it’s important to know that you have a right, as a creditor,to enforce and recover the amount awarded as criminal restitution.   You can use all of the tools available to collect civil judgments.   While there’s no guarantee you will be able to collect all of it, it’s important to understand your right to restitution as a crime victim.

 

CAN YOU GET A PREJUDGMENT WRIT OF ATTACHMENT IN ARBITRATION?

Attachment Availalbe?
Attachment Availalbe?

Attachment & Arbitration?

A prejudgment writ of attachment can help you collect on a breach of contract claim.    Normally, that means that you have a lawsuit pending in a California court.    What if, instead of having a lawsuit pending in a California court, you have an arbitration pending before a private arbitrator?   Can you still get a prejudgment writ of attachment then?

Maybe.

First,  you probably can’t get the arbitrator to grant the prejudgment writ of attachment.    So, you have to go to the Superior Court of California in the district in which your arbitration is pending.

Second, you can go to the court under the statute California Code of Civil Procedure section 1281.8.   Under section 1281.8, even if you are required to arbitrate your dispute, a court can grant you a provisional remedy if you can show that an arbitration award may be rendered ineffectual if the provisional relief is not granted.   A prejudgment writ of attachment is a type of provisional remedy.    In English:  you need to show that if you don’t get the prejudgment writ of attachment, by the time the arbitration is done, if there is a monetary award in your favor, you may not be able to recover it.

Third, you won’t waive your right to arbitration by applying for a prejudgment writ of attachment.    However, you have to agree that pending the arbitration, all other actions on that dispute are stayed.

Fourth,  you still need to qualify for a prejudgment writ of attachment under all of the other criteria for a prejudgment writ of attachment.

You can’t get the private arbitrator to grant a prejudgment writ of attachment.   However, just because you have an arbitration clause in your contract does not mean that you cannot obtain a prejudgment writ of attachment from the court.   As we have explained elsewhere, there are many advantages to a prejudgment writ of attachment which should be considered.    So, if you are in arbitration on a contract dispute, you may wish to consider whether to apply to the court for a prejudgment writ of attachment.

 

CAN YOU SUE A SUSPENDED CORPORATION?

A suspended corporation is a corporation that the California Secretary of State has put on suspended status.   Typically, that means that they have not complied  with one of their obligations under state law, such as filing their annual taxes.  We’ve talked about what happens when your corporation is suspended.  What happens if you learn that a corporation that you intend to sue is a suspended corporation?   Can you sue a suspended corporation?

You Can Sue a Suspended Corporation

Yes, you can sue a suspended corporation.   Although a suspended corporation does not have a right to sue or defend itself while it is suspended (Cal. Rev. & Tax. Code, section 23301)  that does not mean that it can’t be sued.   The question, however, is whether you want to sue a suspended corporation.

Reasons to Sue A Suspended Corporation

There are several reasons why you may want to sue a suspended corporation.

First, a corporation’s suspended status may be only temporary.   A corporation can revive itself by paying the taxes.    So, if you have a valid claim against a corporation, you should pursue it.    This is particularly so if you are facing a statute of limitations deadline.   The corporation may revive itself and defend itself in the lawsuit and meanwhile you will have moved forward on your claim.

Second, if you sue a suspended corporation, the corporation will  have to hire a lawyer to defend itself.  The corporation also has to pay the back taxes to revive itself or face a default.   This increased burden may be a powerful incentive for the corporation to settle with you.

Third, if you sue a suspended corporation and they cannot or will not pay the taxes due to revive itself, you may be able to obtain a default judgment against the corporation which you will then be able to try to enforce.     This brings us to the reason not to sue a suspended corporation.

Reason Not to Sue a Suspended Corporation

If you know that the suspended corporation has no assets and if you don’t have any reason to sue the owners of the corporation to pierce the corporate veil, suing a suspended corporation may be a waste time.   But, of course, it rarely, if ever, makes sense to a sue a party when you know they have no assets, right?

Conclusion

You can sue a suspended corporation.   The question is whether it makes sense to do so.    This is a decision that should be made with your lawyer who, of course, will know the specific facts of your case.

NEW YEAR’S RESOLUTIONS TO HELP YOU GET PAID

New Year's Resolutions to Help You Get Paid
New Year's Resolutions to Help You Get Paid

Financial New Year’s Resolutions

Many of us take the opportunity of the new year to make personal health resolutions ranging from losing weight, exercising more to quitting smoking. If you’re serious about improving the financial health of your business, you may want to think about the following new year’s resolutions. They’re designed to make sure that you get paid by your customers:

1. Get your agreements in writing. While many prefer the informality of handshake and oral agreements, the problem with non-written agreements is making sure that everyone agrees on all of the terms. While it sometimes may take longer to get an agreement reduced to writing, if a disagreement arises, it will be much easier to resolve — or enforce — if there is a written agreement in place.

2. Try to get at least a partial payment up front. The terrible truth about human nature is that once one party fully performs under a contract (for example, by performing services for the customer), the customer is much less motivated to pay. Why should they? They’ve already gotten what they needed from you. To balance this, try to obtain at least a partial, if not a full, payment first before beginning work.

3. Similarly, please, please, please consider, at a minimum, reserving the right to stop working for the customer if they stop paying you. There’s nothing worse than being in a situation where you have to keep working without knowing if you will EVER get paid. Not working and not getting paid beats working and not getting paid any day. Protect yourself and reserve the right to stop working for the customer if you’re not getting paid.

4. Put an attorneys’ fees clause in your written agreement. In the United States, the normal rule is that each side in a lawsuit is responsible for their own attorneys’ fees. However, this can be changed by contract. This means that in your agreements, you can agree that the party winning the lawsuit can recover their attorneys’ fees. If a person who owes you money after you fully performed under the agreement understands that if they don’t pay you, they could be responsible for paying for your attorney, this may help you get paid easier.

5. Do not ignore slow or no-paying customers or put bad debts on the back burner. Debts are not wine. They do not improve with age. If you think there’s a problem with a customer paying you, there is. The sooner you address it the better. This means that you look at the likelihood of getting paid realistically and make a decision whether to (a) enforce the debt or (b) write it off. Drifting along in a no-man’s land and refusing to make a decision is the worse thing you can do.

While there may be other things that you can do to improve the financial health of your business and make sure that you get paid, think about adopting at least one of these financial new year’s resolutions. Happy New Year to all!

FASTER PAYMENT WITH AN ARBITRATION CLAUSE?

Faster Payment with an Arbitration Clause?
Faster Payment with an Arbitration Clause?

Should You Use an Arbitration Clause?

There’s a rumor going around that if you agree to arbitrate, you can get paid faster. True? Well, actually, we’ll give you a true “lawyer” response . . . .it depends.

What is Arbitration?

Arbitration is a way of resolving a dispute without using the court system. In the court system, a judge who is paid by the government decides who wins the dispute. In arbitration, a private person, who is paid by the parties, decides. Like court, you can present the facts to the arbitrator in a hearing. The arbitrator then makes a decision.

What Is an Arbitration Clause?

A clause is language in a written contract. An arbitration clause says that if you have a dispute about the agreement that the dispute will be resolved by arbitration. Sometimes it will require that your arbitration occur before a certain group, such as the American Arbitration Association. Sometimes, it requires a panel of arbitrators. This means that there are usually three arbitrators. This is not as common as it used to be because of the costs.

Will an Arbitration Clause Help Me Get paid Faster?

Sometimes. (Sorry, there’s no black or white rule here.) An arbitration can take less time to get decided than a court trial. Also, the parties can agree to shorten the process and limit the issues to be decided. On the other hand, if the arbitrator you like has a full schedule (and most of the better arbitrators do), it may take a long time to get your hearing. Because both sides have to agree on the arbitrator, it could take longer to make those decisions.

Also, if you can take advantage of some prejudgment remedies, like a prejudgment writ of attachment, with a lawsuit for breach of contract, that may be more effective and help you get paid faster.

While there can be advantages to have an arbitration clause in your agreements, it does not guarantee that you will get paid faster.

CAN A JUDGMENT DEBTOR EXAMINATION ORDER HELP YOU GET PAID?

Can A Judgment Debtor Exam Order Help You Collect?
Can A Judgment Debtor Exam Order Help You Collect?

Can A Judgment Debtor Exam Order Help You Collect?

The short answer is “Yes.”

What is A Judgment Debtor Examination Order?

A judgment debtor examination order (sometimes called an “ORAP”) is an order that you can get from the court after you obtain a judgment.   With this ORAP, the court sets a date for the judgment debtor to have to come into court and answer questions about their assets so your lawyer can then take steps to obtain those assets and get you paid on the judgment.  Your lawyer can ask about all the debtor’s assets, including bank accounts, stock accounts, real estate, intellectual property, or any other assets.  Your lawyer also can ask the debtor if anyone else (such as customers) owe them money because you can collect on those too.

How Do You get an ORAP?

Your lawyer files for an ORAP or judgment debtor examination order with the court.   The court will then set the date.   The lawyer then has to have the debtor served with the ORAP papers.  The papers will order the debtor to come to court on the day listed for the ORAP.

However, there is also one other very important advantage of a judgment debtor examination order.   Once the debtor is served with the ORAP papers, the creditor now has a lien on all personal property of the judgment debtor.   What does that mean?   That means that if the debtor transfers property or money to someone else, the creditor now has the right to go after that third party to collect on the money that the debtor transferred to the third party.   Here’s an example.   Joe has a judgment for $100,000 against Jill.    Joe serves an ORAP order on Jill.   Meanwhile, Jill decides to transfer $100,000 to her Aunt Mable to try to stop Joe from getting the money.   Because Joe had a lien on all of Jill’s property after he served the ORAP order on Jill, Joe now can get an order that Aunt Mable give him the $100,000 that Jill transferred to Aunt Mable.   Pretty powerful, right?

What Happens At the ORAP?

At the ORAP, a deputy or a clerk makes the debtor take an oath to tell the truth.    The creditor’s lawyer and the debtor then go someplace close (meeting room, cafeteria in the courthouse or, sometimes, even a bench in the courtroom hallway).   The lawyer then asks the debtor questions about the debtor’s assets.   In some cases, if the debtor has assets on his or her possession (such as cash in their wallet or a watch)  the lawyer can get an order from the judge that the debtor turn over those assets to the creditor’s lawyer.   Depending on the courtroom, when the creditor’s lawyer is done questioning the debtor, they return to the courtroom.   Sometimes, if the debtor was supposed to provide documents and did not, another date is set for another judgment debtor examination.

What Are the Advantages of an ORAP?

There are many advantages to obtaining a judgment debtor examination order.   First, as explained above, when the debtor is served with the order, the creditor obtains a lien on all of the debtor’s personal property.   Second, after receiving the ORAP papers, many debtors would prefer to try to settle the case rather than go to court and, this of course, encourages them to settle with you.   Third, sometimes, the creditor’s lawyer can learn about the debtor’s assets.  Why isn’t this the first advantage of an ORAP?   Read on and we’ll explain.

What Are the Disadvantages of an ORAP?

There are three main disadvantages.  First, like many judgment enforcement mechanisms, sometimes serving a debtor with ORAP papers prompts them to file for bankruptcy.   Second, and perhaps most importantly, debtors lie.   Despite being sworn to tell the truth, the whole truth and nothing but the truth, debtors are very, very unlikely to do so, at least about their assets.  Third, if you’re paying your lawyer by the hour to collect on your debt, because debtors lie, this could be a great waste of time and money.

Should I Have My Lawyer Obtain A Judgment Debtor Examination Order?

If you are trying to collect a judgment, it’s helpful to know what an ORAP or judgment debtor examination order is. There are many reasons why a judgment debtor examination order may be helpful to you in collecting your judgment.   As explained above, however, there also are disadvantages.  Whether or not it would work for you to collect your judgment depends on the facts of your case.   That is why you should discuss this with your experienced collections lawyer.

YOU HAVE A SUSPENDED CALIFORNIA CORPORATION. NOW WHAT?

California Suspended Corporation - What to Do?

A suspended California corporation.   What does it mean?  What do you need to do?

California Suspended Corporation - What to Do?

Suspended Corporation?

Why Did Your California Corporation Get Suspended?

In California, if you do not pay your corporate taxes, your corporation will be suspended.   You can find this rule in California Revenue & Taxation Code section 23301.   The same thing can happen if you don’t file a corporate tax return.    This can also occur if you do not timely file either the original Statement of Information for your corporation or file  your corporation’s annual Statement of Information.  (See California Corporations Code section 2205.)  So, if your California corporation is suspended, it is likely because you did not (a) pay your taxes; (b) file a tax return or (c) file an updated Statement of Information.

What Does it Mean If Your California Corporation is Suspended?

A suspended California corporation loses its rights to exercise its power, privileges and rights.   A suspended corporation cannot bring a lawsuit.   It cannot defend itself against a lawsuit.   It cannot file a notice of appeal.   If a lawyer representing a California corporation learns that is is suspended, there are serious consequences for proceeding with the lawsuit.    A suspended California corporation cannot engage in any type of real estate transaction.     A suspended California corporation also can lose its corporate name.  Another corporation may take away the suspended corporations name by filing articles of incorporation, a name reservation or amending its articles with the Secretary of State.    Unlike some of the other consequences of being suspended, which can be restored, losing your corporation’s name to another cannot be restored.

What Do You Do If Your California Corporation is Suspended?

A suspended California corporation can apply to be reinstated to the Franchise Tax Board after it complies with its obligations (filing a tax return and/or paying taxes.)   Your corporation is then issued a “Certificate of Revivor.”   Once your corporation is reinstated, many of your corporate powers are restored.  If your corporation was suspended for failing to file a Statement of Information, after the Statement of Information is filed and the fine is paid, reinstatement occurs.)

What Happens After My California Corporation Is Revived

Once your California corporation is revived, if it is in a lawsuit, it can once against defend itself or prosecute an action.    It can also go forward with its appeal.  One defense that will continue to run while the corporation is suspended is the statute of limitations.   Thus, you should talk with your lawyer if there are statute of limitations issues with a suspended corporation.   Once revived, your California corporation can also proceed with real estate transactions.

Unfortunately, if your corporate name has been taken away, you probably were required to use a new name to revive your corporation and that corporate name has been lost to you.

What About Appeals?

if you or your corporation lose in the trial court, there is a very strict 60 day time limit for filing an appeal.   If you miss this deadline, you can’t go forward with your appeal.    So, what do you do with a suspended California corporation if you need to appeal from the trial court’s decision?    That question was answered in a recent California Supreme Court decision.   Bourhis v. Lord  (Mar. 4, 2013 – S199887, S199889)  That case makes it clear that the suspended California corporation must file a notice of appeal within the 60 days and then apply for reinstatement as soon as possible after that.   After the corporation is revived, it will then have the right to go ahead with its appeal.

Conclusion

Given the hassles and possible risks of having your corporation’s powers be suspended, it really makes sense to stay up to date with the taxes, tax returns and Statement of Information.   If your California corporation does become suspended, talk with your attorney about filing for reinstatement as soon as possible.

The foregoing is not intended to be legal advice.  Just because you’re reading this does not mean that I am your lawyer or you are my client.  if we have not signed a retainer agreement, then we are not lawyer and client.  Instead, the foregoing is general legal information designed to educate the public and whether or not it applies to your situation will depend on many things — none of which we’ve discussed.  You should ask your lawyer whether it applies to you.  He or she is best situated to analyze these rules and to see if they apply to you.  OK?