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Collecting Against Assets of Alter Ego Corporation

On Behalf of | Apr 9, 2014 | Alter Ego Corporation

Finding an alter ego corporation to an individual judgment debtor can be a very effective collection tactic.  Consider the situation where the debtor owns his or her own business and draws no salary and deposits no funds in his or her personal bank account.  Obviously the debtor has access to income because he or she is surviving, buying food, maintaining a home, etc.  From a collection standpoint, you could garnish the debtor’s salary but the business will answer no salary is being paid and you will be arguing the truth of that in court for months with no relief for your client.  The debtor’s bank account will also be empty because all personal expenses are being paid directly from the business to protect his or her assets from you.  So what can you do?

One method of attack is to have the court declare that the business is the alter ego of the judgment debtor and as such, the corporation’s assets become subject to execution to satisfy your judgment.  Florida law allows the courts to disregard corporate formalities where a creditor proves that a judgment debtor used the corporation to deceive or defraud his or her personal creditors. Therefore, if a creditor is able to establish that the judgment debtor is paying his or her personal expenses through the corporation, the court may declare the corporation as the alter ego of the debtor subjecting the corporate assets to execution.

A really aggressive collection tactic would be to post a bond and have a prejudgment writ of garnishment served on the corporation’s bank account. This would freeze the corporate funds until the court makes a determination as to whether the corporation is the alter ego of the judgment debtor subjecting the corporation’s assets to execution. A court decision could take awhile, however, in this instance the corporate bank account’s funds are frozen which puts pressure on the judgment debtor to pay off the judgment and free up corporate funds.