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tshepardiv, Attorney
Category: Business Law
Satisfied Customers: 4
Experience:  I am a licensed attorney practicing in the fields of bankruptcy, litigation, and business services.
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A sales associate who is operating a regional office for our

Customer Question

A sales associate who is operating a regional office for our firm in Ohio has been caught setting up his own business and diverting business to his own business while under the employment of my firm.

A Federal judge has intervened and instructed that this person to not engage in practicing business for 90 days and to assist in getting those revenue numbers back to where they were prior to him trying to steal the business.

We have an upcoming meeting with the judge this week and the sales associate and his attorney to discuss damages.

My concern is that I have a fear that this associate, who has been basically ignoring the judges order to assist in increasing the business, will declare bankruptcy if the penalty is too severe and then I have basically won the battle but lost the war.

What leverage do I have in the event of him declaring bankrupcy.
What happens if he transfers every asset that he has into his wife's name.
Is this associates retirement / 401K plan and house open for a judgement.
Can I put a lean on this associates future income?

What steps can I take to protect my companies' position so that we end up with nothing?

Submitted: 4 years ago.
Category: Business Law
Expert:  Attorney2020 replied 4 years ago.

Attorney2020 :



I will be assitsing you today.

Customer :

ok, thank you for your assistance.

Attorney2020 :





Unfortunately Ch 7 BK would discharge unsecured debts such as this one.


However, if the employee did profit from the actions at issue, he is likely not to file for CH 7 because all of those assets would be liquited to creditors such as yourself. The trustee would pay off as many creditors as possible. That is your only leverage.


Transferring Assets


As far as transferring assets, there is a doctrine known as the fraudulent transfer rule that would not allow the defendant to transfer assets in order to avoid paying current creditors.


Exempt Property


Regarding the 401(k), this account is an exempt asset. Keep in mind that a person can only contribute a certain amount to their 401 k per year so I doubt all of his assets have been contributed to this account yet, and if so, the fraudulent transfer rule could apply.


As for the house, the house is not exempt. After a judgment, you can enforce the judgment by placing a lien on the house. Also, discuss with your attorney the pre-judgment remedies that would protect you as a creditor as well. These issues could get very complicated and I suggest that you hire an attorney, if you haven;t already.


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Customer :

I appreciate your response.


Customer :

What are the per-judgement remedies that you are referring to?


Customer :

Are these remidies that you are referring to, steps that I need to take to secure my position and to some extent, insure a benificial financial settlement?


Customer :



Customer :

Would you give me an example for illustrative purposes.


Expert:  tshepardiv replied 4 years ago.

Hi Robert,


Thanks for your question.


While most debts are dischargeable in bankruptcy, not all debts are. Student loans, child support, and some debts where the debtor (person declaring bankruptcy) acted in bad faith are non-dischargeable in Chapter 7 bankruptcies.

If this associate were to declare bankruptcy, you would have a strong argument that he acted in bad faith, meaning that he engaged in a fraudulent manner. The bankruptcy court could refuse to grant him a discharge -- without a discharge, his creditors (including you) can continue to collect against the amounts he owes you.


Additionally, if he tries to transfer assets to his wife/relatives within 2 years of declaring bankruptcy, then the bankruptcy trustee can sue his to recover these transfers. Any proceeds recovered from the trustee's lawsuits would go to fulfill the debts owed to unsecured creditors.


In bankruptcy, a debtor's IRA/401k is generally exempt from collection actions. However, if the associate transferred funds into a retirement account just prior to filing for bankruptcy, then the bankruptcy trustee may be about to re-collect that money.


Outside of bankruptcy, you can place a lien on any property he owns, garnish his bank accounts, or his wages from an employer. These are the three main ways to collect on a court judgment.


In short, outside of bankruptcy, there are several ways to collect on a judgment. However, if the associate declares bankruptcy, he won't get very far because you have a strong bad faith argument. Nevertheless, dealing with the bankruptcy could may prove time-consuming and expensive for you. If you can settle this issue with the associate soon, it might be your best course of action.


Good luck!

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