Some creditors are smart; some are devious, and others are both smart and devious. Here is an example of the latter type of creditor from an inquiry I received this past week. Creditor files a lawsuit. Defendant hires an attorney to defend the lawsuit. The creditor wins a large judgment against the defendant. When creditor tries to collect the judgment he finds that the defendant has no collectible assets. Creditor tells the defendant that defendant’s attorney “screwed up”, and that absent the negligence of defendant’s attorney the creditor states that the defendant would have won the case.
This makes the debtor/defendant angry at his attorney so he sues attorney for malpractice. The attorney has malpractice insurance. After the suit is filed the creditor did one of the following ( it wasn’t clear from conversation) : the creditor either levies upon the defendant’s cause of action against his own attorney or any insurance proceeds therefrom, or he joins forces with defendant to help fund and prosecute malpractice action against defendant’s attorney in exchange for a share of insurance recovery. The creditor now has the attorney’s insurance policy as a source of money to recover what he could not otherwise recover from the judgment proof defendant.
This story illustrates an important lesson of asset protection. Never assume your creditors or their attorneys are stupid, lazy, or moral. This is an example of a very clever strategy by a creditor to turn an noncollectable debt into a cause of action against a new defendant backed by a significant insurance policy available to pay claims. Debtors trying to defend collection of a judgment must always be vigilant. The debtor must try to anticipate and prepare for the most aggressive collection tactics. If you relax your asset protection effort you may find yourself unable to repel the type of aggressive collection tactics illustrated by this example.