Debt collection options for assets hidden in a business

Debt collection options for assets hidden in a business

On Behalf of | Feb 8, 2022 | Collections

Collecting a debt can be a stressful task. While it is never a fun task, getting people to pay what they owe is essential to supporting the businesses you serve.

When people get desperate to avoid paying a debt, they may resort to trying to hide their assets. In some cases, they will try to conceal their assets within a corporation or an LLC.

Here’s what you should know about collecting a debt when the debtor hides assets in a corporation or LLC.

The corporate veil

Corporations and LLCs have a common frustrating trait for debt collectors. Both business entities create a corporate veil that can shield an individual’s personal assets from the actions and assets of the business. This is useful, for example, when the company fails and the individual wants to keep their house.

When a debtor hides their personal assets, it can make it difficult for a creditor to see those personal assets. For a collector who knows where to look, however, shielding personal assets within a business is typically not a viable solution.

Piercing the veil

Your ability to pursue assets that are concealed in a corporation or LLC will depend largely on how and when the debtor moved the assets. When a debtor owns an LLC or a corporation, you can request a debtor’s examination to demand that they appear in court. You may also need to make a motion to pierce the corporate veil, which means the court will set aside the protections of their LLC or corporation in order to hold them personally responsible for their actions and debts.

Hiding assets with a business can get complex, especially if there are many layers to their finances. It may take a significant amount of investigation to find hidden assets in these situations.