Avoiding Liens Through Persuasion

April 13, 2006

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When battling liens against you, all of this asset protection planning has another ancillary benefit that serves your goals: The more judgment-proof you make yourself, the less likely a creditor may be in pursuing a case. Or at the least, you may be able to influence a settlement, possibly sooner than later. All of these options have their obvious benefits.

Many times, judicial liens can be avoided through the power of persuasion; that is, by convincing the other party that bringing the lawsuit would be a waste of time. This could eliminate the need to file a bankruptcy action.

In a court proceeding, there are three parts to a lawsuit: factually proving the elements of the case (e.g., negligence), proving the existence and amount of monetary damages, and collecting the judgment. The plaintiff has the burden in each of these three parts.

In many cases, the first part is not an issue. For example, if an employee making a delivery runs into the back of a vehicle stopped at a red light, there really is no issue as to whether the employee was negligent. The employee was negligent. However, the amount of monetary damages suffered will almost always be an issue.

Actually collecting a judgment can be the most difficult obstacle for a plaintiff to overcome, particularly where there are no assets to attach, either because there are no significant assets, or all of the assets are protected by exemptions and other means.

Most states provide that a judgment expires after 10 to 20 years. This may seem like a long time. However, in practice, judgment creditors rarely continue to pursue the collection of a judgment after an initial attempt fails when they realize that the effort will be fruitless.

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In practice, if someone with a claim learns that the other party has no reachable assets, usually the matter will be dropped, and no lawsuit initiated. The relevant saying is, "You can't get blood from a stone."

No lawyer would take a case on a contingent fee basis for a plaintiff under these circumstances. Thus, the plaintiff will be faced with the prospect of paying his or her attorney by the hour (at rates of $150 and upward per hour), with the likelihood that he or she will collect nothing. Faced with these dim prospects, even individuals who would otherwise sue on principle will usually choose not to pursue the matter further.

Thus, informing the other party that the lawsuit will be fruitless, before it is filed, can be a very effective strategy. If you do not have resources that could be reached by a judgment creditor, let the other party know immediately of your situation. Because of the costs and time involved in bringing a lawsuit, most parties will forego the claim when presented with these facts.

One word of caution is necessary, however. Phrasing can be important. Don't elaborate on the asset protection plan you have in place. General statements usually are better. Simply tell the other party, or his or her lawyer, that you will defend against the lawsuit if necessary, but that you don't have any assets that would be available in any event. When questioned, simply point out that your only real asset is your home (or your ERISA-qualified retirement plan), which is exempt. Tell the other party that you will vigorously defend against the lawsuit, but it will be a waste of time anyway. If you do not feel comfortable doing this, hire a lawyer. The fees spent will usually be worth the results achieved in this situation.