Articles Posted in Collections

If you are a creditor, you may not know that assets transferred in divorce settlements can be considered voidable transfers. The court can either reverse the transfer or enter a judgement against the spouse receiving the transferred property.

Under the Uniform Voidable Transactions Act (UVTA), previously known as the Uniform Fraudulent Transfers Act (UFTA), a transfer may be fraudulent or voidable if the debtor made the transfer with intent to hinder, delay, or defraud any creditor of the debtor, or without receiving a reasonably equivalent value for the transferred property.

In a recent case, the Georgia Court of Appeals determined that a divorce settlement transferring assets could be considered a voidable transfer. In Enlow v. Enlow, 352 Ga.App. 865 (2019) https://casetext.com/case/enlow-v-enlow-2 a minor threatened to sue her grandfather for molestation. Twelve days later, the grandfather transferred five parcels of real property in a trust, previously held by him and his wife, solely to his wife. A month later, the couple filed for divorce, and the grandfather deeded all five parcels to the grandmother in the divorce settlement. This settlement was approved by the trial court.

A “fraudulent conveyance” occurs when a debtor tries to avoid paying an unsecured debt by transferring property to another entity or person if the property is at risk of being seized by a creditor. In a Georgia appellate decision, a defendant LLLP appealed the lower court’s granting of an LLC’s motion asking to be substituted for the plaintiff in the lawsuit, as well as its motion for summary judgment denial. The defendant LLLP argued that the lower court had made a mistake in finding that the LLC had standing to recover under the Uniform Fraudulent Transfer Act (“UFTA”) claim.

The case arose in a trial of a different lawsuit. In that case, the court ordered the estate should specifically perform to buy the LLC’s stock from shareholders. A few months later the shareholders sued the estate, the LLLP and others asserting UFTA claims and asking for damages for fraudulent conveyances.

The plaintiffs claimed that a couple had created the LLLP in 2010 in order to transfer $5 million to the company with the goal of defrauding creditors. The couple asked for damages, including satisfaction of the $1.2 million judgment they’d been awarded. The plaintiffs argued that the UFTA allowed voiding of those transfers since they were made in order to defraud, delay or hinder the estate’s creditors (such as the plaintiff).

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If you should find yourself in the position, as a judgment creditor, of needing to pursue an adversary proceeding against a Chapter 11 debtor, it is important to understand that there are many procedural rules involved in the process. While the courts may allow parties a bit of leeway because the law favors decisions made on the merits as opposed to procedural technicalities, some procedural flaws can have disastrous results. By working with a skilled Georgia creditors’ rights lawyer, you can make sure that you are doing everything possible to avoid falling into procedural pitfalls.

One example of a case in which a procedural imperfection led to considerable federal litigation was a dispute that arose between two business partners, Gary and David. In the 1990s, Gary and David developed a plan to establish a business that dealt in discount home improvement and building supplies. The plan seemed strong, but the business never took off. By 2007, with business still poor, Gary sued David, and David countersued. Eventually, in 2011, a jury ruled for David and awarded him damages in the amount of $318,025.

The next year, Gary filed for Chapter 11 bankruptcy. David sought to file an action within that bankruptcy, asking the bankruptcy judge to declare the damages award handed down a year earlier to be a non-dischargeable debt in accordance with 11 USC 523. The bankruptcy judge gave David until Oct. 12, 2012 to file a complaint and initiate an adversary proceeding under Section 523. However, David didn’t file a complaint and initiate an adversary proceeding, at least not at first. He filed a “Motion to Dismiss or for Determination of Non-Dischargeability of His Debt” prior to the deadline. Then, on Oct. 17, he filed an adversary complaint.

Sometimes, achieving a favorable ruling on liability and damages, while an enormously important step, isn’t always the end of the line for getting the compensation you deserve. In certain circumstances, you may need to undertake additional legal actions to collect the money you deserve, including filing garnishment actions against other entities. Sometimes, it also involves seeking default judgments. To make sure you have access to all of the procedural techniques available to get the money owed to you, make sure you have retained a skilled Georgia collections attorney.

One example of a case in which the award of damages was only the beginning was the litigation undertaken by a lien services company. The lien services company sued a health care and logistics services provider. The lien services company achieved success in that case, obtaining a money judgment. To seek out the money it was owed, the lien services company filed a garnishment action against a different corporation.

In this garnishment case, the defendant took no action in response to the lien services company’s initial filing. Due to the defendant’s inaction, the lien services company asked the trial judge to issue a default judgment. A default judgment means that the defaulted party failed to take the required steps within the mandatory time period established by the law. Generally, for a defendant in Georgia, the law allows 30 days to file an answer. After those 30 days, if the defense has submitted no answer, it is in default. After a defendant is in default for 15 days, the trial court can enter a default judgment. Once that happens, the default judgment carries the same impact as a judgment on the merits.

Sometimes, getting the compensation your business deserves for a breach of a contract simply involves filing legal action and then presenting a persuasive argument and getting a judgment in your favor. In other circumstances, this step is the first in a multi-faceted process. Whether your needs are related to commercial litigation or judgment collection, you need to make sure that you have the sort of experienced Georgia business counsel that your case demands.

A matter recently decided by the Court of Appeals is an example of how elaborate such disputes can be, and how very minute errors can have major consequences. The first legal case was a contractor firm’s commercial litigation action in California. The contractor won that lawsuit and obtained a judgment that included a $1 million damages award. Of course, getting the compensation you’re owed sometimes involves more than winning your case. This is particularly true if you believe that the entity that owes you damages is engaging in improper conduct, such as making fraudulent conveyances, to evade paying the judgment. When that happens, you may need to litigate in multiple different jurisdictions to get the benefit of your damages award.

This contractor firm allegedly found itself in that type of situation. The defendant in the California case had, according to the contractor firm, provided another entity with the funds needed to acquire a piece of real estate in Roswell. Allegedly, this was all a part of a scheme to shelter the California defendant’s assets from the judgment creditor.

Recently, a federal court de­clared Georgia’s garnishment stat­ute unconstitutional leaving the short-term future of garnishments uncertain. While the decision tech­nically affects only the Clerk of Gwinnett County, other clerks in Georgia have already taken action to halt garnishments. Likewise, at­torneys and creditors have now lost the defense of complying in good faith with existing law after the publication of this decision. Finally, credit unions could also be liable for complying with garnishments.

THE CASE

The decision in Strickland v. Alexan­der held that Georgia’s garnishment statute is unconstitutional for three reasons: (1) it fails to require no­tice to debtors of certain state and federal exemptions to garnishment (like Social Security exemptions); (2) it fails to provide notice of a proce­dure to claim an exemption; and (3) it fails to require a timely hearing to decide exemption claims. The court enjoined Gwinnett County’s State Court Clerk from issuing summons of garnishment using current forms and procedures that were ruled uncon­stitutional. The facts of the case cre­ate a compelling story for the debtor.