I was on a web site relating to debt collection, credit scoring and similar matters the other day.
My question: Is this even vaguely legal? It looks shady as all H-E-double-hockeysticks, but I can’t figure what a DA would charge you with.
I saw a poster (let’s call him Bob) outline a method he claimed could be used to avoid having his wages garnished effectively by his creditors.
Found LLC owned by Bob, but without obvious links to him or mailing address.
LLC sues Bob. Bob doesn’t appear in court, winning LLC a default judgement.
LLC files papers to garnish Bob’s wages from Bob’s employer.
State law prohibits more than one wage garnishment from happenning on one paycheck, so LLC gets a check for the full garnishment allowed by law.
Bob takes the check from the court and cashes it out, to prevent it from being in his bank account for garnishment.
Okay, now I’m certain that if Bob’s creditors’ lawyers figured out what Bob did, they’d be able to get a court to seize the cash bob got from the judgements, claiming these transfers were made in fraud of the creditors. That’s a civil matter though.
Can anyone think of a crime in the above?
Disclaimer: I am not a lawyer. I am not being sued by anyone. Even if I was being sued, I wouldn’t try the above, because it is downright unethical. The poster on another board designated “Bob” never said he actually did this, just that it was a possibility. I post this because of academic curiousity as to US law.
I would think it would qualify as a kind of criminal fraud, though IANAL. It’s a form of deception, misusing the court system, (since the LLC does not have any valid reason for a judgement against Bob, and Bob is concealing the fact that he is the LLC from the court,) and he has undertaken it for a form of personal gain… to keep a creditor from being able to claim what is (maybe) rightfully theirs.
Also, in order to receive a default judgement, a plaintiff must submit an affadavit laying out the facts upon which the judgement is based. If the defendant contests these facts, there’s a trial; if the defendant doesn’t show up, the court will issue a judgement on the affadavit. Since the affadavit sets forth a fraudulant claim, the making of it is perjury, punishable by § 18.2-434.
Finally, a corporation, even an LLC, may not appear in court except by counsel. That is, a person may appear pro per, in his own proper persona. A sole proprieter may appear on his own behalf as well. But a corporation is a legal person. Since it cannot appear on its own behalf, someone must represent it. That is the practice of law, and only an attorney may do so. So you must either find an attorney willing to defraud the court and risk disbarment, or one that’s so idiotic he won’t recognize the sham nature of the proceedings.
Even if one could somehow manage to satisfy **Bricker’s ** objections, there’s still the matter of perjury.
Once another creditor got a judgment, that creditor would be entitled to question you under oath about your assets, income, and debts at a proceeding called a debtor’s exam, a creditor’s exam, or an examination of judgment debtor, depending on the state. They’d ask questions like:
Do you have an interest in any LLCs?
Do you own any property?
Do you have any cash?
Do you get paid money by anyone but your employer?
What was that other lawsuit about?
That sort of thing, except, if the creditor’s lawyer was good (as in-house counsel for a creditor, I’ve hired some lawyers in other states to do these who weren’t good), there’d be about 600 of them, and you’d be required to produce every document that concerned any of the questions that the lawyer asked. Lying under oath is perjury.
Also, you’d have a tough time avoiding liability for tax fraud. If you didn’t commit tax fraud, the lawyer would find out about the scam when you produced tax returns at the exam.
Another thing Bob should consider is that is that the courts don’t like - really, really, don’t like - being made unwitting co-conspirators in schemes to hinder, delay or defraud creditors. If this little prank gets on The System’s radar screen, Bob can be sure that all sorts energy and creativity will be brought to bear to find a crime with which he can be charged. Precisely which one will depend on the jurisdiction.
I believe that New Mexico, at least, doesn’t require the LLC to identify principals.
Nonetheless, it looks like we’ve discovered at least half a dozen other reasons that Bob’s Patented System For Avoiding Garnishments ™ is a criminally bad idea. Chefguy, Hmmmm. Starting an LLC and covering the incorporation papers with garnish. Now THAT’s a visual image for you.
Garnisheeing is not the correct term. Though it gets used, even by lawyers.
The verb is garnish–not garnishee. The noun form is garnishment.
Because it is a legal proceeding involving parties, it is sometimes necessary to refer to the person who owes money to the judgment debtor. Because that person is on the receiving end of the deal, legal custom provides a solution: add ee to the end (lessee, subrogee, mortgagee, promisee). So non-lawyers frequently see the word garnishee, or even more confusing, garnishee defendant. Garnishee as a verb is a result of some linguistic phenomenon that I lack the vocabulary to describe more specifically.
That said, the term does appear in some US statutes and appellate decisions. The term seems more common in Canada.
Among other methods, a judge who concludes that the cash exists could order a judgment debtor to turn it over, and (upon failure to comply) jail him for contempt of court until he did.
Or are you really asking “How would a judge find out that the cash exists?”
If a creditor’s attorney figures out that Bob owns the LLC, it’d be a fairly simple matter to trace the checks issued to the LLC in satisfaction of the garnishment, examine the reverse, and determine that they were cashed (rather than deposited in an account somewhere). If Bob adds a step, and runs the checks through another bank account, the reverse of the check will allow you to trace that account, and determine where the money in that account went. Ultimately, the proceeds would likely be withdrawn or converted to cash somehow. Once the creditor’s attorney gets to that point, he provides the evidence to the judge, and the judge then turns to Bob and asks for an explanation of where the cash went.
As Bob has, at this point, already perjured himself repeatedly, his explanation will need to be fairly compelling.
In addition to the other reasons that Bob’s plan is stupid, he’s going to waste a lot of money in filing fees and transaction costs, and (at least in some states), it’s legal for an employer to fire an employee if his wages are repeatedly garnished.
Still think it sounds wrong, and even your own source says garnishing is fine, which undercuts your original point, which was that the only proper form was “garnisheeing.” Here are some examples of statutes using garnish, garnished, and garnishing.
I take it that Bob had better not say he spent $13K on lap dances at the “Pinky Pony” gentleman’s club.
Actually, ummm… Random, what the heck WOULD be compelling enough at that point?
I’m thinking anything short of verifiably spending the money on a spaceship used successfully to blow up a planet-killer asteroid headed straight for the earth would probably get Bob locked up.
Does Bob go to jail for perjury or fraud? Probably.
Can the court trace the money? Maybe.
If the court figures out Bob’s scheme, can it take the cash? Yes. If Bob still has it. If he has spent it on something like lap dances, the money is gone. They probably can’t put him in jail for spending it. So the creditor is probably SOL. If he bought houses with it (I had a real case like this: A guy was embezzling from his employer and spending the proceeds on homes for relatives that he then brought into the country) the homes can be sold and the proceeds given to the creditor.
What if the money is gone? The creditor will still have a judgment against Bob. Bob, now a convicted felon, will be that much more difficult to collect against. OTOH, he probably won’t do time for hiding the assets–only for lying about it.
What is the timing of all of this? Statutes that permit creditors to unwind transactions have statutes of limitation. I just had a case in Ohio where the sleazy debtor had owned around 20 properties. He transferred the properties to LLCs and relatives just as his creditors were beginning to sue him. My company didn’t realize that it had a judgment against him (grrrrrrrr) until years later. By the time I got involved (most of this happened before I came on board) the statute of limitations for fraudulent transfers had pretty much run.
Can he have a good explanation? Not under the facts given. The transaction just doesn’t make financial sense. Once it comes out the he and the LLC are one and the same, the jig is pretty much up.
Your thinking it ‘sounds wrong’ is hardly credible criteria. I’ll concede that the terms are interchangeable in common usage, although common usage, even by lawyers (whom you seem to revere), does not necessarily make it correct.
This definition even says that in law, ‘to garnish’ means ‘to garnishee’.
Let’s see. I’m a lawyer with thirteen years of collection experience. I’ve actually done garnishments (probably a hundred or so; in three or four states). I have also represented garnishees, including my current employer in various matters relating to garnishment. Garnishment is a legal process–performed by lawyers. This is a thread posing a legal question. I’ve cited you statutes from numerous states that support my point. Let me say this definitively for you: You are wrong in your claim that
As you have admitted, the terms are used interchangeably. If you want to use “garnisheeing” and ::shudder:: “garnisheed,” more power to you. You’ve got dictionary support for the usage. Just don’t do it when I’m eating.
Mr. Slant, excellent question. As for what would be a compelling reason for Bob’s scheme? I’m assuming he cannot prove mental illness (given the relative complexity of his scheme, I suspect he would fail most jurisdictions’ tests for mental illness/incompetence). Saving the world would be a good one, but might be hard for him to prove. Reliance on the advice of a professional, like a lawyer, might relieve him of some of the penalties, but not of having to return the money. In short, Bob’s up a creek without a paddle, even if he no longer has the money.
As others have said, the debtor’s exam is a powerful tool, particularly because it can be used not only to inquire of the debtor, but to inquire of others, like family, friends, and employers. I’ve only ever once come close to being able to do a debtor’s exam, and when the defendant’s lawyer explained what was going to happen, the defendant miraculously “found” the money he owed my client.
No. Let’s fight over estoppel, or, more specifically, that one is estopped to do something. The only proper usage is “estopped to.” Hearing “estopped from” sends chills down my spine.
No way! I’ve ALWAYS seen estoppel written out, and “estopped to” has not once showed up in the 20 times I’ve seen that word. Then again, if we want to hijack my thread, we could debate “endorsing” financial instruments versus “indorsing” them.
