Wednesday, February 23, 2005

Reasons to Incorporate in California

Disclaimer: The information contained in this article is provided for general information purposes only and is not intended to be a legal opinion, legal advice or a complete discussion of the issues related to the area of incorporating a business. Every individual's factual situation is different and you should seek independent legal advice from an attorney familiar with the laws of your state regarding specific information.

Reasons to Incorporate in California

A number of clients have asked me about the advantages of incorporating in other states like Nevada or Delaware. After all, AM talk radio stations often run advertisements about the advantages of incorporating in other states. For most small businesses based in California, however, incorporating in California is generally the best option.

INITIAL INCORPORATION IS CHEAPER: Since January 1, 2000, qualified newly formed California corporations will not be subject to the minimum California franchise tax for the corporation's first taxable year. Previously, corporations had to prepay a minimum franchise tax of $800 along with the filing fees for Articles of Incorporation. This fee has been eliminated for most new corporations' first year. This means you pay $115 to incorporate instead of $915.

REDUCED PAPERWORK: Under prior law, corporations doing business in California were required to file a statement of officers and directors every year. Now this form can be filed online and is filed every two years.

THERE IS NO TAX BENEFIT FOR INCORPORATING IN ANOTHER STATE: Corporations doing business in California -- even if incorporated in another state -- are required to file a California corporation tax return. California law imposes heavy penalties on corporations doing business in California that fail to file. All corporations doing business in California pay the same taxes, regardless of where they are incorporated.

Any corporation 'doing business' in California is also subject to the minimum franchise tax. 'Doing Business' means actively engaging in any transaction for the purpose of financial gain. The minimum franchise tax was eliminated for most new corporations filed after January 1, 2000 but ONLY for the first year. The minimum franchise tax still exists thereafter for corporations.

OUT-OF-STATE CORPORATIONS SUBJECT TO CALIFORNIA LAW: Under California law, if an out-of-state corporation has more than 50 percent of its property, payroll and sales in California, the corporation must comply with California corporate law. The same is true if more than 50 percent of its voting stock is held by persons with addresses in California.

OUT-OF-STATE CORPORATIONS MUST QUALIFY TO DO BUSINESS IN CALIFORNIA: According to California law, if an out-of-state corporation does business in California without obtaining permission to do so (also known as "qualifying to do business" in California), that corporation may be disqualified from answering any claim or defending any lawsuit filed in the State of California. The company’s failure to be able to answer such complaints may result in a default judgment being filed against the company.

A foreign (out-of-state) corporation transacting intrastate business in the State of California must qualify to do so with the Secretary of State's Office. 'Transacting intrastate business" is defined as entering into repeated and successive transactions of a corporation's business in this state, other than interstate or foreign commerce.

If you are planning to do business in California, it will be more cost effective in the long to incorporate in California in most cases. If you wish to schedule a free appointment for a consultation, please contact us at (619) 448-2129.

About the Author
Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Monday, February 21, 2005

What Can I Do If I Can't Pay My Debts?

This article is reprinted from a consumer pamphlet published by the California State Bar. Click here for more information on our bankruptcy services.

1. What if I'm billed for something I didn't buy?

Try to settle the problem as soon as possible. If you get a bill for something that you didn't agree to buy, write to the creditor — the person or company that says you owe a debt. Do the same thing if you don't believe you received everything you are being asked to pay for. Keep copies of all your letters.

If you can't work things out on your own, try to find a consumer protection agency that handles the kind of problem you have. Look in the white pages of your telephone directory under "Consumer Complaint and Protection Coordinators." Or, call the state Department of Consumer Affairs toll-free at 1-800-952-5210 to find out who might be able to assist you with your particular problem. You can visit the department's Web site at

In addition, you may want to consult a lawyer (see #15), because most debts are based on a contract. This is a legally binding agreement that can be written or spoken.

In any case, be sure to do something, because it could turn out that you owe a debt. And you could end up with serious money and legal problems.

2. Can other people find out about my debts?

Yes. If you don't pay your bills, you can end up with a bad credit rating, which is a report on your financial situation.

Credit ratings are issued by credit-reporting agencies. These companies get information about your debts from your creditors, and they make their reports available to other creditors, employers and landlords.

A credit report includes such information as whether you pay your bills on time, have had a foreclosure, owe money as the result of a lawsuit or were convicted of a crime. Each piece of information stays in the report for a certain number of years. For example, a bankruptcy usually will be listed for 10 years.

What if a store refuses to give you a charge account because you have a bad credit rating? The store must give you the name and address of the credit-reporting agency that made the report, and the agency must let you see the report.

If you tell the agency that some of the information in the report is wrong, it must look into the matter. If the agency decides that its report is correct, you can explain your side of the story in writing. Then, anyone who checks your credit rating will see your explanation. If you ask, the agency also must send your explanation to anyone who received your credit rating for employment purposes in the last two years and to anyone else who received your rating within the last six months.

3. Can I be forced to pay someone else's debts?

Sometimes you can. For example, if your spouse obtains a necessity of life — such as food, clothing or medical care — and cannot pay for it, you can be made to pay. This may be true for a former spouse, too, if you were married and not separated when your spouse got into debt.

In most cases, people under the age of 18 can get out of agreements to buy something. However, you are responsible for the debt if you co-sign a contract or loan agreement for someone under 18 or for anyone else. This means you promise to make the payments if the other person fails to live up to the agreement.

What if you co-sign an agreement for someone who ends up filing for bankruptcy? The other person may not have to pay the debt, but you will.

You also may have to pay certain debts, such as medical bills, for your minor child.

4. Can my creditors pester me?

Creditors or bill collection agencies — companies that try to collect past due bills — cannot legally call you over and over on the telephone. It is also against the law to threaten you with harm or contact you at work after you tell them not to. In addition, the law says that if you write and ask them not to contact you at all, they must stop. Then, they can get in touch with you only to let you know that they are suing you. Be sure to keep copies of all letters you write.

Creditors and collection agencies are not supposed to contact your employer, except to make sure that you are employed. And, they cannot send you anything that is meant to look like a legal document when it is not.

If you are bothered in any of these ways, you should get in touch with a consumer protection or law enforcement agency. Or you can ask a lawyer for help.

5. Can my property be taken to pay a debt?

A creditor usually must go to court and win a lawsuit against you before taking your property. However, let's say you make a written promise to either pay your debt or give the creditor something you own. The item you promise to give is called the security, and the money you owe is called a secured debt. If you fail to pay a secured debt, the creditor usually can take the security.

Let's say you borrow money to buy a car and the car is the security. If you fall behind on payments, the lender can repossess, or take back, the car without going to court. However, the car must be on public property when it is repossessed.

Even if the car is repossessed, you still might end up owing the lender money. For example, suppose you owe $8,000 on the car when it is repossessed, and the lender gets only $7,000 by selling the car at an auction. Then, you can be sued for the $1,000 that the lender is out — plus any money spent to repossess the car and sell it.

Companies that repair or store items also can take property from you without going to court. For example, if a shop cleans your rug and you do not pick it up and pay for the cleaning, the shop can keep the rug and sell it after a period of time.

6. What happens if I am sued?

If you have a secured debt (see #5), the creditor can sue you for either the security or the amount of money it is worth or both. If you do not have a secured debt, you will be sued for the money you owe.

If you are sued for $5,000 or less, a creditor might decide to take you to small claims court. You cannot be represented by a lawyer in this court, but you can talk to one beforehand. For more information, see the State Bar pamphlet How Do I Use the Small Claims Court? and Using the Small Claims Court, a booklet available through the state Department of Consumer Affairs.

Lawsuits for larger amounts are filed in a higher court, where it is important to have a lawyer represent you.

In any event, do not ignore any court summons that you receive. This is a paper that says you are being sued. If you do not respond to the summons within a certain time, you automatically lose the case — and your property or bank accounts can be taken.

As soon as you receive a summons, you should:

-Consult a lawyer (see #15).
-Get in touch with the lawyer hired by the person suing you and try to negotiate, or work out, a way to settle the dispute.
-You can try to negotiate a settlement even after the suit is filed, but you should do so only if you have first responded in writing to the summons.

7. What happens if I lose the lawsuit?

Suppose the lawsuit demanded that you return a secured item. The creditor can get an order from the judge allowing a sheriff or marshal to take the item from you and give it to the creditor. Once this happens, your debt usually is canceled.

Maybe the suit demanded money and you did not pay the amount that the judge ordered you to pay. In this case, something you own can be attached, or taken. The property — such as a car or bank account — would be about the same value as the amount of your debt. A car, for example, could be sold, and the creditor would get the money it brings in. You may, however, be able to keep certain items (see #8).

A judge also can order your employer to withhold up to 25 percent of your take-home pay to pay a debt. This is called a garnishment of wages.

8. Can I protect my property if I am sued?

If you lose a lawsuit, you also may lose some of your property. However, the law lets you claim that some property is exempt, which means that it cannot be taken from you.

When you receive a notice that your property is being attached, you have 10 days to deliver a Claim of Exemption form to the sheriff or marshal. This form describes the property and explains why it legally cannot be attached. Most sheriff, marshal and court clerk offices have these forms.

The creditor can either accept your claim or challenge it at a court hearing. At the hearing, you must prove that the property is exempt. If you do not go to the hearing, you automatically lose the exemption.

You cannot file a Claim of Exemption if your debt is for unpaid federal income taxes or for a necessity of life such as food, shelter or medical treatment. These debts must be paid.

However, among other things, you and your spouse together can claim exemptions for:

-Up to $75,000 in equity in your home if you are part of a family unit (up to $50,000 if you are single), and up to $150,000 (as of January 2004) if you are 65 years old or older, or disabled, or on a low income.
-A $1,900 equity in one or more cars.
-Up to $5,000 in tools and other items that you need for your work (or up to $10,000 for items used by both spouses who do the same work).
-75 percent of your salary for the last 30 days or wages that have not yet been paid.
-Up to $5,000 worth of jewelry, heirlooms and works of art.
-Life insurance policies with a cash value up to $8,000 each. Married couples may combine this exemption; it doesn't matter whether the policies belong to you, your spouse or both of you.
-Up to $1,000 in an inmate's trust account.
-Up to $2,000 each in a bank account in which your Social Security payments have been directly deposited ($3,000 if the one payment is directly deposited for the benefit of both spouses).

In addition, you and your spouse each can claim exemptions for:

-Household furnishings and clothing that your family needs.
-A cemetery plot.
-All or part of retirement, disability and health insurance, workers' compensation, welfare, unemployment, union and other benefits that are needed to support your family.

9. What if I just need more time to pay my debts?

First, ask your creditors for the time you need. Or, ask if you can make a series of small payments over a period of time. If any creditor agrees to one of these arrangements, write a letter to confirm the agreement. Keep a copy of the letter.

You might try using the services of a credit and debt counseling agency. However, shop carefully for one that you believe gives good advice. Consumer Credit Counseling Service, a network of non-profit agencies partially funded by creditors and the U.S. Department of Housing and Urban Development (HUD), often helps people work out plans with their creditors.

To locate a Consumer Credit Counseling Service office in your area, look in the white pages of your telephone directory under "credit and debt counseling" or call 1-800-777-PLAN (777-7526). You can visit the service's Web site at Or, contact the National Foundation of Consumer Credit at 1-800-388-2227. (The foundation's Web site address is

Be careful about getting a debt consolidation loan that is used to pay off debts. If the interest (the money that lenders charge for loans) is too high, you may end up with a bigger problem. If you do get a loan, however, make sure all of the financial statements that you give the lender are true and complete.

10. What if my creditors won't give me more time?

You can file a Chapter 13 bankruptcy in the nearest United States Bankruptcy Court. Chapter 13 allows you to stop all collection in exchange for your promise to pay your available funds to creditors under a Chapter 13 plan. The repayment plan allows you to pay your debts over a period of time — between three and five years. At the end of this time, all your debts are canceled — even if you have not paid them in full — as long as you fully performed your plan.

You could, instead, file a Chapter 7 bankruptcy. This means you ask the bankruptcy court to cancel most of your debts because you don't have enough money or property to pay them off.

To file Chapter 13 or Chapter 7, you must pay a filing fee in bankruptcy court, either alone or with your spouse. A trustee will be appointed. If you have a Chapter 13 plan, this person collects your payments and pays your creditors. If you file for Chapter 7 instead, the trustee sells any of your property that is not exempt (see #14) and distributes the money it brings in among your creditors. Once you have filed for Chapter 13 or Chapter 7, the creditors you had before you filed cannot attach your salary or other possessions without bankruptcy court permission.

If you lose your job or have a long illness while you are paying off your debts through a Chapter 13 plan, you can switch from Chapter 13 to Chapter 7 at any time. You can file for Chapter 7 only once in a six-year period. But you can file for Chapter 13 as often as you need to. However, you must have a good excuse if you fail to complete the plan and want to file a second time.

11. When should I use a Chapter 13 plan?

You should consider a Chapter 13 plan if you can work out a way to pay off part of your debts over a period of time and still afford the reasonable costs of living.

The law says you can use a Chapter 13 plan if you have a steady income. This means you work for wages, own a small business or receive pension, Social Security or other benefits. You also must owe less than $871,550 in secured debts, such as a mortgage, and less than $290,525 in other debts. (These dollar amounts will change in April 2004.)

If you qualify for Chapter 13, you and your lawyer must work out a plan for the court to approve. The plan must show how you intend to pay all or part of your debts. Certain debts must be paid in full. These include secured debts, federal or state income taxes that you have incurred in the past three years, and the court, trustee and attorney fees involved in setting up and carrying out the plan.

12. Should I file for Chapter 7 instead?

If you can't work out any other reasonable way to pay your debts, you might consider Chapter 7. It allows an honest debtor to make a fresh start by having a court discharge, or cancel, most debts. Chapter 7 is a way to get out of debt when you owe more money than you can be expected to pay in a reasonable amount of time.

The law says that an employer can't fire you or refuse to hire or promote you because you filed Chapter 7. However, Chapter 7 can have a bad effect on your credit rating (see #2) for a long time. Also, Chapter 7 may solve the problems you have now, but it won't protect you if you can't pay new bills.

If you choose Chapter 7, you or your lawyer must file a number of forms and papers with the bankruptcy court. These include a list of your debts and property, plus information on your income and how you spend it. The court decides if you are better suited for Chapter 13 than Chapter 7 if requested to do so. It can dismiss your case.

Also, a judge can refuse to discharge all or some of your debts through Chapter 7. For example, you may not be allowed to have your debts canceled if you run up a lot of bills on purpose or if you borrow money just before filing with a dishonest motive.

13. Will Chapter 7 wipe out all my debts?

No. Chapter 7 does not cancel:

-Secured debts.
-Most income taxes incurred in the last three years.
-All student loans, unless you qualify for a hardship discharge.
-Child and spousal support.
-Any money that you owe as a result of being sued for drunken driving.

Your debts also will not be canceled if a creditor proves that you lied about how much money you have, tried to hide some of your property or committed fraud.

You may choose to reaffirm a secured debt. This means that you decide to pay the debt and keep the security, even though Chapter 7 would otherwise cancel the debt.

14. If I file for Chapter 7, can I keep any property?

If your property is exempt, it cannot be used to pay off debts. When you file for Chapter 7, you can choose between two sets of exemptions. One set is the same as the one you can use to protect your property from creditors in a lawsuit (see #8). Homeowners generally prefer this set, since it allows a much larger home equity exemption than the other set.

These are examples of things that you and your spouse together can keep if you use the second set of exemptions:

-A $17,425 interest in a home and/or burial plot. If you do not own either one, you can apply the -$17,425 elsewhere to keep such non-exempt property as an income tax refund. You also have a -$925 floating exemption, which means you can apply it to any non-exempt property.
-A $2,775 interest in one car or other motor vehicle.
-All items (not to exceed $450 in value in any one particular item) that are household furnishings and goods, clothing, appliances, books, crops and musical instruments.
-$1,150 in jewelry.
-$1,750 worth of books or tools that you need to earn a living.
-An unmatured life insurance policy and cash value in a life insurance policy up to $9,300, each.
-Social Security and veterans' benefits, unemployment insurance money, and pension and profit-sharing plans.

15. How can I find a lawyer to represent me?

If you do not know a lawyer, ask a friend, co-worker, employer or business associate to recommend one.

Or, call a local State Bar-certified lawyer referral service. Look in the Yellow Pages of your telephone directory under "Attorney Referral Service," or contact your local bar association. For an online list of certified lawyer referral services, visit the State Bar's Web site at

State Bar-certified lawyer referral services, which must meet minimum standards established by the California Supreme Court, can assist you in finding the right lawyer for your particular problem. Most of these services offer half-hour consultations for a modest fee.

Attorneys who are members of State Bar-certified lawyer referral services must carry insurance, agree to fee arbitration for fee disputes, meet certain standards of experience and be State Bar members in good standing.

Lawyer referral service fees do vary. Don't forget to ask whether there is a fee for the referral or initial consultation. And if you decide to hire a lawyer, make sure you understand what you will be paying for, how much it will cost and when you will be expected to pay your bill.

What if you do not have enough money to pay for legal advice? You may belong to a "legal insurance" plan that covers the kind of services you need. Or, if you have very little income, you may qualify for free or low-cost legal help. Check the white pages of your telephone directory for a legal services program such as a legal aid society in your county. (California's new statewide legal services Web site — — can help you locate a local program and provide you with additional resources as well.) You also could ask your local bar association if its State Bar-certified lawyer referral service offers free legal advice to those with little income.

Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection. We are a bankruptcy and debt relief agency. We help people file for bankruptcy.

Thursday, February 17, 2005

Understanding Bankruptcy

Disclaimer: The information contained in this article is provided for general information purposes only and is not intended to be a legal opinion, legal advice or a complete discussion of the issues related to the area of consumer bankruptcy. Every individual's factual situation is different and you should seek independent legal advice from an attorney familiar with the laws of your state for specific advice. State law generally determines how much of your property the debtor will be able to keep when filing for bankruptcy.

What is Bankruptcy? Bankruptcy is a legal way to avoid paying your debts. One client once referred to her bankruptcy filing as her "Jubilee Year", referring to the forgiveness of debt in Leviticus 25. We have no Jubilee Year today, so bankruptcy is the only method for some people to keep their home from foreclosure, their car from repossession and to keeping creditors from harassing them.

When a person is discharged in bankruptcy, he or she is relieved from liability for most debts incurred before the bankruptcy was filed and protected from future collection of those debts. The purpose of bankruptcy is to give you a "fresh start," and the bankruptcy code is interpreted by the Courts to give effect to these words.

What Kinds of Bankruptcy Are There? There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13. (The other two chapters, Chapter 11 and Chapter 12, apply to corporations and people who don't qualify for a Chapter 13, and to family farmers.) Chapter 7 is what most people think of when they think of bankruptcy. All of the debtor's assets with the exception of exempt items or assets with no equity can be sold and the proceeds are distributed among the creditors. A typical Chapter 7 bankruptcy will last about four or five months from filing to discharge. Chapter 13 provides a way for you to pay back your creditors, in whole or in part, over a period of three to five years. You must have less than $269,250 in unsecured debt (such as credit cards and doctor's bills) and less than $807,750 in secured debt (such as mortgages and car loans) to qualify for Chapter 13. Due to the Court-approved payment plan, a Chapter 13 bankruptcy will last between three and five years, although attorney involvement usually ends after about three months. In many cases, no interest will be paid on the amounts being repaid through the Chapter 13 Plan, you pay your unsecured creditors only pennies on the dollar, and you keep all of your assets.

What's Involved in Filing for Bankruptcy? A bankruptcy is started by filing a Petition with the U.S. Bankruptcy Court. The requirements for the petitions vary depending on the Chapter under which the bankruptcy is filed, but involve detailed forms and schedules. Filing fees are $200 for a Chapter 7 and $185 for a Chapter 13. Attorneys fees generally range from $500-$750 for a Chapter 7 and $1500-$1700 for a Chapter 13. Bankruptcy is very complicated and it is extremely difficult for a debtor to file for bankruptcy without the help of an attorney.

Will I Lose Everything If I File? A person who files for bankruptcy may exempt certain items from the bankruptcy. In most cases, this lets you keep your home, your car, your furniture, your household items and your retirement. Different states have different allowances for exemptions. You also can keep assets that have no equity, such as a car that's worth less than is owed on it, or a house where the mortgage is higher than the property value. Even if there is a small amount of equity, you can normally keep the asset.

Can All My Debts Be Wiped Out? There are certain debts which cannot be discharged. Federal and state taxes incurred less than three years before the date of filing (although you may get more time to pay them back), student loans (except where you can show "undue hardship"), child support and alimony are the big ones.

What Happens Once I File? Once the Petition is filed, the Court issues an Automatic Stay. This stops all legal proceedings against you. Foreclosures, repossessions and garnishments are halted, creditors cannot call or write you, and lawsuits against you can not be filed or pursued if they are pending.

Are Different Creditors Treated Differently? Creditors are broken down into three main classes: priority, secured and unsecured. Priority creditors are those creditors which are given special (and priority) treatment under the law for collection of the money owed them. They are paid first. Some examples of priority creditors are the IRS and people owed child support or alimony. Secured Creditors have next call. These are creditors who have a security interest or lien in or on your property, such as a bank holding a mortgage on your home or a finance company holding a lien on your car. Most of the time, secured creditors will be paid. Everyone else is an Unsecured Creditor. Credit cards, loans from banks and individuals, doctor's bills, some taxes that are old enough, and general claims for money are all unsecured debt. In most cases, unsecured creditors get nothing or only a portion of what they are owed. You may also terminate Executory Contracts, such as leases for an apartment, car or equipment, in a bankruptcy.

How Do I Keep My House and Car? If your payments are current, you have to keep making them. If you're behind, you can pay the arrearage through a Chapter 13 Plan and re-start the payments after you file.

Where Can I Get More Information? The California State Bar puts out a rather detailed brochure that is available on-line by clicking here. It is in Adobe PDF format, and you will need to download the reader, if you don't already have it installed, by clicking here.

Bankruptcy is a complex and confusing area of the law. You need legal advice you can count on to guide you through the process. We are experienced in helping you through your financial difficulties. If you have any questions, please call us at (619) 448-2129 or e-mail us to set up an appointment. We are a bankruptcy and debt relief agency. We help people file for bankruptcy.

About the Author
Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Tuesday, February 15, 2005

Advantages of Incorporating

Separate Legal Entity Status

A corporation is a separate legal entity existing under authority granted by state law. It has its own identity separate and apart from its shareholders/owners.

Broad Range of Powers

As a separate legal entity, a corporation has the power to act in any way permitted by law and by its own corporate charter. For example, a corporation can enter into contracts, buy and sell both real and personal property, sue and be sued, and can even be responsible for breaking the law (i.e. committing a crime).

Small Claims Court

In most jurisdictions, any officer or director or employee can appear in small claims court on behalf of the corporation.

Separate Liability for Corporate Debts

As a separate legal entity, a corporation is responsible for its own debts. Normally, shareholders, directors, and officers are not responsible for corporate liabilities. If the corporation suffers losses, the corporation itself must bear those losses to the extent of its own resources, and not the personal assets of the individual shareholders. In effect, however, shareholders indirectly bear these losses by a decline in the value of the stock they hold in the corporation. Note however, that shareholders, directors, and/or officers may be held liable for the debts of the corporation where the court imposes "alter-ego liability" or where the individual has personally guaranteed the corporate debt.

Perpetual Duration

A corporation is capable of continuing indefinitely. Its existence is not affected by the death or incapacity of shareholders, directors, or officers of the corporation.

Duration of Corporation Compared to LLC

An LLC has a limited existence. Absent a contrary agreement, a limited liability company (LLC) is dissolved upon the death, withdrawal, or bankruptcy of a member unless the business is continued by unanimous vote of the remaining members. Although the operating agreement can be drafted to avoid such a result, the life of the LLC is still limited to the termination date in the Articles of Organization.


Corporate Formalities

A corporation can be created only by compliance with General Corporation Law of the state of incorporation. This usually requires filing of Articles of Incorporation with the appropriate state entity (usually the Secretary of State) and payment of the requisite state fees and taxes. A corporation is required to have a board of directors, corporate officers, annual shareholders meetings, and to maintain separate books and records. Failure to observe such formalities may result in the personal liability of shareholders for corporate debts. However, where the corporation has only one shareholder, many states allow that one shareholder to act as director and all officers (President, Secretary, and Treasurer).

About the Author: Carl H. Starrett II, Esq., has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Sunday, February 13, 2005

Using Small Claims Court, Part II

Going to court is only the first step in collecting the money owed to you. It is up to the judgment creditor to actually enforce the judgment. There are a number of methods available to help you collect your judgment.

Voluntary Payment: Even after you have obtained the judgment, you can still make payment arrangements with the debtor. In the past, a small claims judgment did not automatically appear on the debtor's credit rating. This trend has changed in recent years and some judgment debtors will voluntarily pay to clear the judgment from their credit rating. The debtor can also file a motion to request permission to pay the judgment in installments.

Abstract of Judgment: This document is issued by the court clerk for a fee of $15.00. Also referred to as a judgment lien on real property, it creates a lien and clouds title to any real property owned by the debtor within the county in which it is recorded, including houses, condominiums, vacant land and even timeshares. The judgment debtor cannot sell or refinance the property without negotiating with the creditor or paying off the lien.

Judgment Lien on Personal Property: This is particularly useful when the debtor owns a business. When filed with the Secretary of State, this document creates a lien on accounts receivable, equipment, farm products, inventory and negotiable documents of title. It can make it difficult for the debtor to obtain credit after this document has been filed and served. The filing fee is $20.00.

Writ of Execution: This document is issued by the court clerk for a fee of $15.00. It tells the Marshal or Sheriff how much to collect on the judgment. A Writ of Execution is required for most judgment enforcement procedures such a wage garnishment or bank account seizures.

Bank Account Levy: Upon delivery of the Writ of Execution, written instructions and a fee of $30.00, the Sheriff will issue a Notice of Levy which freezes the bank accounts of the judgment debtor. However, the Marshal or Sheriff must go to the branch where the account is held in order to properly levy on the account. In one case, an alert creditor kept a photocopy of a check from a debtor. Using this information, the creditor was able to have the Sheriff seize the money in the account and pay off a $1700 judgment. Reliable bank account searches through a private investigator cost as little as $200. In another case, a client was able to reach an account for over $7,000 after conducting a bank account search.

Earnings Withhold Order: Also called a wage garnishment, the Sheriff will notify the employer to withhold money from the debtor's pay check. The Sheriff's fee for this service is only $25.00 and the employer can withhold up to 25% of the debtor's net pay. In one case, our office started a wage garnishment on behalf of a client. The Sheriff served the Earnings Withholding Order on a Tuesday. The judgment debtor delivered a cashier's check to the Sheriff on the following Monday to pay off the judgment and stop the wage garnishment.

Rent Garnishment: If you know of someone who owes the money to the judgment debtor, the judgment creditor can collect that debt directly. A common example is a rent garnishment. If the debtor owns a rental property, the creditor can send the Sheriff to collect the rent directly from the tenant as a payment toward the judgment.

Till Tap/Keeper Levy: If the debtor owns a business, the Sheriff can take money directly from the cash register, which is commonly called a till tap. For larger judgments, the Sheriff can leave a "keeper" in charge of the business for up to 8 hours. The "keeper" will collect all the cash and checks that come into the cash register for that day and can also prevent credit card transactions. This can be particularly useful in collecting judgments against businesses such as a retail store or a restaurant.

Vehicle Levy: In extreme cases, the creditor can even have the Sheriff seize the judgment debtor's car and have it sold at auction. This can be very expensive and is better suited for large judgments.

Asset Investigation: Once an asset is identified, the process to collect and sell the asset is fairly simple. The most difficult part is locating the asset. We have connections with numerous private investigators that will perform asset searches for as little as $200. We also have access to numerous computer databases to gather information on a judgment debtor. Also, talk to the person's neighbors. Find out where the debtor works. Every bit of information will help you to be successful in collecting your judgment.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Saturday, February 12, 2005

Using Small Claims Court, Part I

In this article, I will cover the basics of small claims court in California.

What is small claims court?

Small claims court is a special department of the Superior Court where disputes are resolved quickly and inexpensively. The rules are simple and informal. The person who sues is called the plaintiff. The person who is sued is called the defendant.

How much money can I sue for?

In most cases, you can sue for up to $2500. An individual plaintiff can file two claims per year of up to $7,500. Corporations and other entities (like, government entities) cannot ask for more than $5,000. If someone owes you or your company more than the small claims limite applicable to your case, you can still sue in small claims court if you agree to waive your claim to waive the amount above the limit.

How do I file a small claims lawsuit?

In most cases, you must fill our a form called a Plaintiff's Claim and pay a filing fee of $30-$75 depending on the amoun of the claim. The State of California offers a Self-Help Center where you can fill out the forms online before taking them to the nearest small claims court. The court clerk will give you the case number as well at the time and date of your trial. The trial is usually scheduled about 6 weeks after you file the lawsuit

How do I serve the lawsuit?

In most cases, you must serve the defendant at least 15 days before the trial date. Some people choose to have the clerk of the court serve the lawsuit via certified mail, but this is often the lease effective method of service because the defendant can refuse to sign for the notice.

Any person over the age of 18 may serve the lawsuit, except for the Plaintiff. A friend or relative may serve the lawsuit, but many people hire a registered process server or the Sheriff's Department to serve the lawsuit for a small fee. Click here for more information on the rules and regulations regarding the service of small claims lawsuits.

Can I have an attorney?

You may consult with an attorney to help you prepare your case, but you cannot have an attorney at trial. You can have an attorney represent you to collect the judgment or if there is an appeal after the trial.

What happens at the trial?

The most common types of small claims cases are car accidents, property damage, landlord/tenant rent deposit disputes and collection of money owed. You cannot bring an attorney to the trial, but you will need to bring evidence to support your claims or defenses. Common examples of evidence include:

  • Witnesses (the judge might not consider a notarized statement)
  • Photos
  • Bills
  • Receipts
  • Contracts
  • Any other proof you have

You must show all of your evidence to your opponent before the trial. If possible, you should bring your original documents plus two copies. You should give copies to your opponent, give the originals to the judge and keep copies for yourself to refer to during the trial. Placing the evidence in a binder with a timeline and a tabbed index is recommended as well.

You must be respectful to the judge and do not interrupt when your opponent is speaking. You should speak only to the judge, not your opponent. It most cases, the judge will send you written notice of the ruling instead of giving you the ruling at the hearing.

What is a "judge pro tem"?

Sometimes your case might be heard by a temporary judge (called a "judge pro tem" or "judge pro tempore"). A judge pro tem is an attorney who volunteers time on a regular basis to hear small claims cases. However, you can ask for a judge or commissioner to hear you case instead of a judgment pro tem. Chances are you will need to come back another day for the trial.

Can I appeal if I lose?

If the court enters a judgment against the defendant, the defendant has 30 days to appeal. The plaintiff can only appeal if the defendant files a counter claim and the court awards money to the defendant on the counter claim.

How long to I have to file my claim?

Most claims will have a Statute of Limitations. The length of time to file the lawsuit depends on the type of claim. Here are some common examples:

  • Personal injuries causes by negligence: two years after you were hurt or found out you were hurt
  • Breach of a verbal contract or agreement: 2 years to file after the agreement was broken
  • Breach of a written contract or agreement: 4 years to file after the agreement was broken
  • Property damage caused by negligence: 3 years to file after your property was damaged

If you are suing a government or public agency, you have 6 months to file a written demand with that agency. If the agency rejects your claim, you have 6 months to file a claim with a small claims court.

How do I collect my judgment?

There many methods to collect small claims judgments, including wage garnishments and bank account levies. Further information on the procedures for collecting small claims judgments will be covered in a future article.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help.

The California State Bar offers a number of free consumer pamphlets, includes one entitled How Do I Use the Small Claims Court. Click here for information other other useful consumer topics.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Friday, February 11, 2005

San Diego City Attorney

Now that Mike Aguirre has finally managed to get himself elected to a public office, it seems that he is more interested in using his current position as a spring board for a higher office than he is in being the City Attorney. His recent actions make me question the credibility of his investigation and I have to wonder if he is objective enough to conduct a proper investigation.

According to the City Charter, Mr. Aguirre is the “chief legal adviser of, and attorney for the city and all Departments and offices thereof in matters relating to their official powers and duties.” Every attorney owes their clients a duty of loyalty. By publicly accusing his clients of crimes, Mr. Aguirre has demonstrated a lack of understanding of the role that a City Attorney plays in municipal government. If a private attorney had treated a client in the same manner, he or she would be subject to possible disciplinary action by the California State Bar and a even a legal malpractice lawsuit by the client. Can Mr. Aguirre be trusted to conduct an unbiased investigation?

I fully support an investigation into any wrongdoing that might have occurred and prosecution of those who are criminally responsible. However, this matter would be more appropriately handled by an unbiased prosecutorial agency such as the District Attorney’s office or the State Attorney General’s office. Mr. Aguirre should remember his duties under the City Charter and step aside in this matter.

About the Author
Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.