Life After Debt.

Date : June 12, 2008

Last week a subscriber wrote me a short note asking a very common question:

I currently have a judgment against me and my enemy is currently collecting 25 percent of my pay for the next 20 years or until I can pay this judgment off. Anyway this whole legal battle has been unimaginable and financially devastating!!! Is there a way to legally start a business and set it up so that these people cannot come after the revenue that the company generates? I know they can come after my salary at 25 percent, but that is already my current reality.

Basically, he wanted to know how he could move forward with his life with a voracious creditor on his back. This is an important question. Many people give up. It seems to be especially hard on men who often judge their value in life by their ability to support their family. My advice to everybody is to never give up and to never let a judgment destroy your direction or focus. There is life after debt.

Here are the options I see for this poor guy.

First: It would have been great if he had an old-and-cold Plan. That way he would have protected assets which would not be available to his creditor. Normally, in this type of situation, a pennies on the dollar deal can be made with the creditor because they would rather receive something than spend a lot of money and time to get nothing. Remember, most suits are brought for money and not to prove some point. In this type of case, a little bit of money can often buy a lot of relief. Unfortunately, my Subscriber was a lurker and not a doer. He did not have a Plan and lost his unprotected assets.

What does somebody with a judgment and little in the way of assets do? That is a difficult question. One thing he should not do is give up or lose hope!

I always consider bankruptcy. After the 2005 changes to the law, bankruptcy is often an unattractive option in that if this Subscriber is at all financially successful he may be precluded from a fresh start Chapter 7 bankruptcy and instead will have to pay out much of his earnings for years to his creditors. Not a good result, and not all that different from his current situation. Note: A great time to implement a solid Asset Protection Plan is right after a debtor is discharged from bankruptcy. There is little risk of a fraudulent conveyance claim because all past debts are eliminated. Many doctors do this knowing that they will still have the same income level the day after the discharge is final.

What are the other options?

Well, the Subscriber with the creditor problems could move out of the country if he could find work or continue with his profession from another location. Remember, no country automatically enforces US judgments. Sometimes it is better to live in England with your money in hand then to live in Pacoima under the threat of garnishment and attachment. This is a very harsh step and one which most people will not take. It is also not available to many people who do not have the freedom to pull up stakes and move.

Well, even if this Subscriber isn’t willing to buy his round-the-world ticket and become a perpetual tourist, he still has other options. Let’s assume that he is an inventor or an entrepreneur. He would be foolish to invent some new “thingie” and to hold title to it in his own name. His creditors would take the “thingie” away as soon as they heard about it.

One technique, which is often utilized by hard line entrepreneurs, is to form a company (either in the US or often better, offshore) and have the interest in that company owned by a solid Asset Protection Trust. This company (let’s call it NewCo) has to start life completely empty. IF substantial assets were transferred to it, that act would be a fraudulent conveyance. However, there is nothing illegal about our entrepreneur working for NewCo and adding value to NewCo based on his blood, sweat and tears (as well as skill). Yes, our Subscriber’s wages can still be garnished (assuming they are paid in the USA!); but, if he invents some new “thingie” while working at NewCo or if he builds up a substantial business of any kind, that business or that “thingie” is owned by NewCo, which is owned by an Asset Protection Trust and NOT OWNED by our Subscriber. By walking down that road, many debtors can still experience some of the benefits of a fresh start. Creditor problems need not destroy incentive if you structure things correctly. Remember, nobody can take from you what you don’t own. The Subscriber doesn’t own the “thingie.”

With a little bit of luck NewCo will prosper and thrive. At the very least, if done correctly, our Subscriber is back to work with some realistic hope that he will be able to survive and eventually eliminate his creditor problems.

Hope this was interesting to you. Have a healthy and protected week.

Rob Lambert

ABOUT THIS EDITOR:

Rob Lambert, Founder and former law professor is considered to be foremost expert on tax compliant asset protection structures. A contributing editor to Lexus Nexus debtor creditors series of law books Rob's passion is implement client wealth plans that stand the test of time and hold up under duress.

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