How To Appear Broke to Creditors and Lawyers

Are you concerned that you might be a target for lawsuits? If you’re worried a lawyer or creditor might perceive your assets as a worthwhile target, you may want to know how to protect them and ensure you aren’t a target. In this article, we share tips on how to make it appear you have fewer assets, making you less of a target.

Key Takeaways:

• A plaintiff can collect damages via your bank accounts and real estate if you’re involved in a lawsuit.
• Certain states, such as Wyoming, don’t reveal the owners of an LLC, so you can use it to control cash and equipment.
• It’s a good idea to create an LLC you can use as a banking resource. You can then create a line of credit for your existing business or LLC to create the appearance of debt.
• You can use your LLC to shield your personal residence and investment properties.

Know Which Assets a Lawyer or Creditor Can Target

If you want to know how to protect your assets, you first need to know which assets are most important to defend. Ultimately, the goal is to understand which assets a collector or lawyer might search for if somebody is considering a lawsuit against you. This will help you appear like you’re not worth pursuing a case against.

Bank Accounts

First, you need to know that collectors can garnish your bank accounts. This applies to both personal and business bank accounts. Essentially, the court can order that funds in the account are held for the collector.

Real Estate and Property

If you own real estate, collectors can also put a lien on your properties. In fact, they can secure liens before they even receive a judgment in court. As a result, you wouldn’t be able to sell or refinance your property. If you did sell your property, the proceeds would go straight to the court until the end of the lawsuit.

Don’t Keep Assets in Your Business

One mistake business owners often make is holding too many assets in their business. While you may need to keep some cash available to run your business, be aware of the pitfalls of keeping large amounts of money sitting in accounts.

If you leave money in your business, you could lose it if somebody pursues a case against your business. That’s why some business owners decide to open another LLC they use solely as an entity for banking related to their business. You’ll be able to write a check or wire cash quickly from one entity to another.

This doesn’t apply solely to cash, either. In fact, you might consider doing something similar for any equipment and materials you use to operate your business. For instance, you might move company vehicles into a separate LLC.

Create the Appearance of Debt

You can use the banking LLC you create to provide a line of credit to your business, ensuring your assets are kept separate. The line of credit can be in any amount of money, and you may even find it advantageous to operate with a higher ceiling. To those inquiring about your assets, it will appear as if your business is indebted to another company.

One way to ensure you create the appearance of debt is to open your banking LLC in a state such as Wyoming, which will not show those researching the business your name. If you try to create an LLC in another state, collectors and lawyers may be able to see that you are the owner of that LLC. Using your banking LLC, you can file financial documents showing that your business is in debt.

This is an effective technique because a lawyer or creditor considering suing your business will think twice when they see there aren’t any assets to pursue.

Protect Investments and Savings Accounts

Just as a lawsuit can impact your cash assets, it can also wreak havoc on your investments and savings accounts. To safeguard these assets, you may need to develop a stronger understanding of state laws so you can determine which states offer the most protection against creditors coming after your earnings. 

Keep in mind that even if these accounts are in your name and not your business’s, you could still end up losing funds. That’s why opening an LLC in Wyoming for these accounts may be beneficial. This way, you’ll maintain complete control over your accounts, and nobody will see how much money you have in savings and investment accounts.

Shield Your Home From Creditors

Your home is at risk if you’re involved in a lawsuit, just like your bank accounts are. A lawsuit could prevent you from selling, refinancing, or even living in the home you’ve worked so hard to own. The key to managing your home is similar to the steps you need to take to protect your other assets. You need to get your home out of your name.

You can open a personal residence trust for your residence in which you are the beneficiary. The trustee of this account can be your banking LLC, even if you’re already using that account to manage business funds and other cash accounts. If somebody searches for your home to see who owns it, they’ll see that it’s not in your name. Instead, the house is in a trust managed by an LLC. Additionally, any proceeds you earn from selling your home will go to the LLC rather than to you, but you’ll still have complete control over those funds.

Safeguard Investment Real Estate

You may already have an LLC to manage your real estate investments, but protecting this property involves a few extra steps. For instance, a tenant may decide they’d like to sue your LLC because they have some idea of the equity you’ve put into the homes the LLC owns. You’ll need additional protections to ensure your investment properties don’t get tied up in lawsuits.

To protect your property, you’ll need to ensure that your equity isn’t visible. You can accomplish this by using your banking LLC to give your real estate investment LLC a line of credit. The LLC can get a deed of trust against the property, which will show there’s a lien against the property.

Whether you own a service-based business or invest in real estate, taking steps to protect your assets is crucial. When lawyers and creditors think you’re broke, they’re less likely to file a lawsuit that could hurt your financial success.