Oftentimes, we’ll get clients who have judgments against debtors who look like a sure-fire, open-shut collection case. The debtor is driving around in a fancy Mercedes, lives in an affluent part of town, and owns multiple seemingly thriving businesses. Things aren’t always as they appear, though. Sometimes, once we start digging, we find out that the debtor doesn’t own anything, is in enormous debt, and is living in a home that’s about to be foreclosed on.
Red Flags of a Broke Debtor
It’s not always simple to figure out which debtors have money and which are actually in debt themselves. Usually, we don’t discover a debtor’s true financial situation until we’re in the find it phase of our recovery process. There are some red flags that are unmistakable, though:
- Rented and leased property
- Multiple business entities
- Numerous lawsuits (often involving fraud)
Those signs are usually tied together. It’s easy to start a company—really all it entails is coming up with a snappy business name and submitting documents to the Secretary of State for a business permit and license. And when someone owns a business, you really don’t know what’s going on within it. It might be a Ponzi scheme where the debtor is planning on taking off with the money, or it could just be a business that is struggling and barely able to pay the bills.
We once had a debtor who seemed to have a successful software business. We visited one of the physical addresses listed on his professional-looking website to personally serve the judgment notice on him, but when we arrived, the business didn’t exist; it was a law office, and no one in the building had ever heard of him. The debtor made a website for this fake business to create the appearance that he actually had something. We looked into him a little more and discovered he had fraud actions and civil cases filed against him. It turned out the house he was living in was rented, his luxury vehicle was leased—it was all a false appearance to get people to trust him and give him investment money, which he would then take off with.
What to Expect When Collecting on a Broke Debtor
Really, there’s no way to know off-hand if a debtor has the money to pay off their judgment. It’s hard for our clients to understand that even though the person who owes them money looks like they have something, they may not have anything at all—it’s just an image they’re portraying to the world.
Ideally, we’d know if the judgment was recoverable or not right off the bat. But we just can’t know a debtor’s financial situation until we get into the discovery process. As always, we begin by carrying out the same secure it process. Getting liens in place is simple, easy, and doesn’t cost much, so that’s always our first step. Once those liens are in place, we work on finding it, and during this phase—which includes the judgment debtor examination and document subpoenas—is when we may find out the debtor doesn’t have everything they portray.
We do our best to figure it out as early as possible, but still there is a cost to try to even get the initial information. If we discover a judgment doesn’t appear to be collectible, we let our client know as soon as we can.
The bottom line is that there will be judgments that are simply not recoverable because at the end of the day the debtor doesn’t have the money that matches their outward appearance. With every case, we tell our clients to have some apprehension; they shouldn’t expect the world just because it appears the debtor owns the world.
If you need help with trying to collect on a million-dollar-looking debtor, or want to know if your judgment is recoverable, contact Fickel & Davis and we’ll put one of our experts on the case.
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