Debtors sometimes hide assets under an alter ego

Debtors sometimes hide assets under an alter ego

On Behalf of | Jun 30, 2023 | Collections

Creditors have to jump through many legal hoops to collect money from debtors. Even after winning a judgment, they still have to collect their debt, often taking further legal steps. Many debtors are well aware of the process and do their best to avoid paying. One misdirection they sometimes use is hiding assets under an alter-ego, pseudonym or related entity, perhaps hidden behind a corporate veil.

Identifying the alter ego

There are specific rules for establishing alter ego liability. The creditor can focus on the following:

  • Proximity: The plaintiff must prove that the related entities and the ownership and interests are not separate. Examples include stock ownership, commingling of funds, disregard for corporate rule, or using a business location associated with the debtor.
  • Equity: The plaintiff needs to prove that allowing the alter ego to remain separate would be akin to injustice or fraud.

The creditor establishes these connections and then argues that these alter ego companies were not part of the previous judgment.

Amending the judgment

If the creditor makes their case for alter ego liability, the court can amend the original judgment to include the previously unnamed entity. Building cases like these take a specific skill set involving knowledge of collection law in California. It also takes someone to dig into the matter and find these hidden entities.