Expert: Regan Shinski - 11/9/2009

Question
QUESTION: I have been served a judgment order from a credit card company. I have been unemployed for 1 1/2 years and trying to get a online business going. My question is if they can seize my bank account? I have the one I pay my bills with, BUT more importantly I have a paypal account in my name that handles the business transactions. I am worried if they can seize that account, then I have absolutely no way to make any income at all. My average monthly income is close to $2000. Should I change the account to a business account with the business name? Would that keep it safe?
It is now a paypal premier account. I am really scared of what they may do. I am a single mom with no other income. I live in Colorado.
Thank you

ANSWER: Yes they can if a judgement is formally in place.  You can place it into a business name but if you are not running a formal business, your protection can be stripped.  Basically you have to prove you are running a business.  Are you a corporation?  Do you file corporate taxes?  Do you pay yourself wages?, etc.  Now realistically would a judgement creditor go to all this trouble?  Probably not.  Actually, highly likely they would not.  But they could in theory.  If it's a large judgement, it more likely they would pursue more actively.

In the case of formally setting up a corporation, there are two drawbacks for you.  First it costs money to set it up.  Secondly, a corporation is supposed to pay officers as employees.  Employees are then subject to wage garnishments.  Again, this is all so unlikely, I really hesitated even mentioning it but if you have an incredibly aggressive collector or a large judgement, you should be aware of their options.

Realistically, for a normal collector and a small judgement, putting it in a business name will help but is not a 100% guarantee.  Remember all accounts tied to the paypal account may also be at risk.

I think a more likely collection technique for you is personal property.  They can have a sheriff come and take/tag certain personal property you own.  You can exempt some property in Colorado such as a vehicle up to $6000 ($10,000 if disabled), $600 in food %26 fuel, $1500 in clothing, a burial plot, $2000 in jewelry, and some other miscellaneous items.  These amounts are excluded meaning the sheriff can take anything above that or not listed.  There are usually an appeals process before the sheriff actually sells the items to pay the judgement.

Liens can also be placed on any real estate you own.

A Colorado county judgement is good for six years and a district court judgement is good for twenty years.  However, both can be renewed by the creditor, so they can stay indefinitely until paid.

Good luck.  I hope this information helps.

Regan

---------- FOLLOW-UP ----------

QUESTION: Thank you for the answer. It is a large judgment about $12,000. I do have the business as a LLC. So it would  just be a matter of changing the account to the business name.
If I file bankruptcy, it does take a few weeks to get paper work done and filed,BUT will that have the judgment and any liens on the property taken off? Also, if I have a roommate, how would I prove what is not my own property? I do own the house, but a lot of the furniture and such is not mine.
Thanks again!


Answer
In theory, the creditor can petition the court to make a ruling on the account.  In that case, you have prove you are running a separate business, not just filtering money through an account in a business name.  This usually involves showing separate corporate records, tax documents, etc.  An LLC can be taxed as a corporation, partnership, or sole proprietorship.  Paperwork has to properly reflect it.  Co-mingling of funds often strips protections.  Same for not reporting income or taking proper taxes out.  In other words, you can't just slap a name on an account and call it a business if you are handling the funds as a personal account.

But I say again, the likelyhoold of this is very little in my opinion.

Chapter 7 bankruptcy can discharge unsecured debt.  If it is discharged, the vacating of the judgement and lien has to be done in a separate motion if they are already in place.

The procedures to tag and sell property vary by jurisdiction.  You should contact your local law enforcement agency to find out specific rules.  However, there is usually procedures in place to protect exempt property and property that is not yours.  Sometimes you have tp provide documentation or statements.  Generally, I really would not worry about your roommate's property being sold.

Regan