The Debtor’s Freeze: Protecting Your Client’s Assets


A. Protecting Assets

Protecting one’s assets is, or should be, a fundamental goal of all persons, whether it be trying to protect the family home, protecting the millions made on the stock market, or the fruits of years of toiling in business. As a result, many people will seek legal advice on how best to protect their assets. They will look to counsel for advice on how to best structure their affairs so that their assets are either completely out of the reach of their creditors, or if they cannot be put completely out of reach, then as far away as possible. Moreover, counsel will also be expected to provide advice on not only the options available but the limitations as well. Depending on when that advice is sought, which asset protection techniques are utilized and when such techniques are utilized, the options available will vary widely as will the likelihood or range of success. It is therefore up to counsel to provide not only advice on how best to protect client assets (or creditor proof or judgment proof the client) but also counsel must be able to advise a client when an asset protection exercise is not legally possible or is legal but its ultimate success is in doubt.

B. Legal Parameters Affecting Options and Advice

Substantive law, procedural law and professional rules and obligations can affect or limit what can be done or advised regarding asset protection. Counsel must be well versed in such limitations in order to maximize the chances of successful creditor proofing while at the same time protecting him or herself from claims by their clients for implementing techniques that were later set aside because they were poorly thought out, poorly exercised, or otherwise ran afoul of such limitations.

Substantive legal parameters include the provisions of the Fraudulent Conveyances Act (Ontario), the Assignments and Preferences Act (Ontario) and the Bankruptcy and Insolvency Act (the “BIA”). Procedural parameters include the Rules of Civil Procedure and the Courts of Justice Act (Ontario). Professional rules and obligations include the Rules of Professional Conduct which impose a code of conduct on legal counsel above and beyond the substantive and procedural law. Each of these parameters will be discussed in greater detail in this paper.

C. Scope of this Paper

This paper will examine some common creditor proofing techniques, the impact of timing (that is, when the creditor proofing technique is implemented may have an impact on its success) and the various limitations that exist that will affect the likelihood of success of the techniques. This paper is by no means exhaustive in terms of creditor proofing techniques and the law applicable to such techniques.

Readers are cautioned that proper creditor proofing is often complex and requires an in depth knowledge of the limitations applicable to creditor proofing as well as the client’s personal and business objectives and situation. Creditor proofing should only be undertaken after careful study well beyond this introductory paper and after obtaining, to the extent desirable or necessary, satisfactory external legal, tax and other professional advice.


The single most important variable when it comes to creditor proofing is timing. Just like the best time to plant a tree is long before one wants to build a tree-house, the best time to take steps to protect one’s assets is long before those assets become at risk from creditors and litigation. Done at a time when there are no creditors or potential creditors, it is more likely that a court will find that such an exercise was intended to achieve legitimate personal and/or business objectives such as carrying out a business plan, a tax-motivated transaction or an estate plan and therefore less likely to be attacked or set aside and less likely that assets will be at risk.1 Moreover, where there are no creditors or potential creditors on the attack, counsel and client are more likely to have the proper and necessary time for thoughtful consideration and focus to develop a proper creditor proofing plan. Unfortunately, in the context of litigation or creditor pursuit, it is more likely that counsel and client will create a rushed, perhaps haphazard, creditor proofing plan that may be the subject of attack.

Timing is therefore key – the earlier the better.


Counsel should speak with his or her client and discuss and review their objectives and affairs in order to “forecast disaster”, that is, to plan ahead with a view to being prepared for foreseeable future difficulties. For example, certain businesses by their very nature may expose your client to potential claims by creditors. In this sense, “forecasting disaster” means discussing and reviewing, among other things, the client’s objectives, concerns, assets, liabilities, business operations, accounts, customers, lawsuits and the potential for lawsuits to determine whether creditor proofing techniques should be implemented, and if so, when and which techniques should be implemented. In doing so, counsel and client should perform a cost-benefit analysis and determine whether and when the benefits of creditor proofing outweigh the costs. For example, this exercise could reveal that the client is exposed to liability from a particular third party and therefore creditor proofing techniques should be implemented both generally and with particular planning vis-à-vis the third party. A review of the client’s affairs may also indicate that one particular creditor proofing technique should be implemented over another, for example, where one would be more desirable or cost effective. Finally, a review could indicate that the client simply does not have the financial resources to creditor proof at that particular time. The following is a non-exhaustive list of creditor proofing techniques that could be implemented before or outside the context of litigation. As discussed above and below, these techniques could also be implemented during or in the context of litigation but they may not be successful.

A. Using Incorporation as a Means to Protecting Assets

i. Corporations have Separate Legal Status

If an individual conducts business as a sole proprietor or in a general partnership, that individual’s personal assets are not shielded from his or her business creditors. In both cases, such unlimited liability stems from the concept that the individual as sole proprietor or partner are one and the same legal entity.

A corporation, on the other hand, is a separate legal entity3 from its owners (shareholders in the case of a share capital corporation and members in the case of a non-share capital corporation). Based on this legal principle, and subject to the ability of the court to “pierce (or lift) the corporate veil” as discussed below, the corporation’s creditors cannot look to the corporation’s owners to satisfy the debts and liabilities of the corporation. The liability of the owners of the corporation is generally limited (hence the term “limited liability”) to the value of their respective investments in the corporation (which can be seized by the creditors of the corporation since such is an asset of the corporation) and any dividends or other distributions they receive when the corporation is insolvent or which render the corporation insolvent4 Accordingly, an individual who operates business as a sole proprietor or in a general partnership may be able to shield his or her personal assets by operating through a limited liability corporation.5

ii. Factors to Consider Prior to Incorporating

While creditor proofing is one reason to incorporate, there are many other factors which should be considered before choosing to incorporate, such as costs, complexities, tax implications of doing so, and whether creditor protection is more important than advantageous tax treatment in the particular situation. For example, there are start-up and ongoing expenses associated with a corporation that are not present in a sole proprietorship, and business losses of a corporation cannot be used to offset the business gains of an owner from a source or sources other than the corporation.

iii. Director and Officer Liability

It is important to note that incorporating does not absolve an individual of all business liabilities. If the individual owner is also a director, and in some circumstances, an officer, he or she may well be personally liable for some of the corporation’s liabilities. For example, if the owner or owners are also directors and/or officers, counsel should advise that they can be liable as directors and/of officers under the various laws (and there are many) that directors and/or officers can be liable under (e.g. for source deductions, vacation pay, and environmental contamination, etc.).

iv. Piercing the Corporate Veil and Other Limitations to Asset Protection Through Incorporation

Like all creditor proofing techniques, incorporation may not guarantee that personal assets are shielded from creditors. In certain circumstances, a court can “pierce (or lift) the corporate veil”.6 This refers to the court disregarding or looking beyond the corporation to, for example, the corporation’s shareholders, directors and/or officers. The threshold is high, it is specific to the particular facts at hand and it is cautiously undertaken. But courts have pierced the corporate veil in the past. Notwithstanding the principle in Salomon, a court could possibly pierce or lift the corporate veil where, for example, assets were transferred from one corporation to another for the purpose of rendering the former incapable of performing its obligations to or satisfying the legitimate claims of its creditors7 or where a corporation operates as a mere tool or conduit of another corporation and is said to be the latter’s alter ego (e.g. in the case of a subsidiary of a parent where the subsidiary is nothing more than a conduit to avoid liability and is not set up for a legitimate business purpose).

Similarly, where the legal element or corporate indicator in the corporate name (e.g. Ltd., Inc.) is not used with third parties, a court could permit a third party to look to the personal assets of the corporation’s owners on the basis that the third party was led to believe that it was contracting with the corporation’s owners and not the corporation. In such a case, the corporation must (and should) register the name as without such legal element or corporate indicator as a business name8 and display both the business name and the corporate name on all contracts, invoices, negotiable instruments and orders involving goods or services issued or made by the corporation.9

Also, if the corporation requires financing, a lender (institutional or not) may (and generally does) require a personal guarantee from the corporation’s owners in addition to the security package granted by the corporation. Where a personal guarantee must be given, counsel should try to negotiate that the guarantee be:

a) limited to a maximum amount; 

b) limited to a certain asset or group of assets; and/or

c) where there is to be more than one guarantor, more advantageous for the lender to go after the other guarantor.

Third parties other than lenders, such as suppliers, do not often require personal guarantees and accordingly any request for one should be resisted by counsel and client.

v. Multiple Corporations

The use of multiple corporations, including a holding corporation, is another technique to try and achieve some level of creditor proofing. In the case of a holding corporation, such is incorporated to hold all or most of the assets of one or more operating corporations, which operating corporations (and not the holding corporation) interact and contract with third parties. Accordingly, such a structure minimizes the possibility that third parties can look to the assets of the holding corporation. Similarly, multiple operating corporations are used where, for example, a business has classes of assets and each operating corporation is used to own a separate class of assets. This increases the likelihood that when the assets of one corporation are attacked and/or seized the overall business can continue to operate on the basis that the assets owned by the other corporations cannot be looked to for satisfaction.

Each corporation should interact and contract with third parties in such a manner as to maintain their separate corporate identities. From a marketing and advertising perspective, it is common for groups of corporations to present themselves to the public using, for example, the same intellectual property, letterhead, customer complaint phone number and website. However, such common presentation could result in the public being led to believe that they were contracting with one or more of the group’s corporations than they otherwise would have had the separate corporate identities been maintained and so presented. The failure to maintain separate lines could also increase the chances that a court will employ the “enterprise entity” theory10, disregarding the division of an enterprise among corporations and integrating the corporations into one legal entity for the purpose of providing creditors with assets to look to and which they otherwise may not have been able to so look to. Accordingly, counsel should recommend that groups of corporations, to the extent possible, clearly present their separate corporate names, occupy separate office premises (or floors), have separate customer complaint phone numbers and educate their employees on how to maintain and present the separate legal entities and advise customers of such.

vi. Rollovers

Assets may need to be transferred to the newly incorporated corporation by an individual or another corporation. Such a transfer can occur on a tax-deferred basis under section 85 of the Income Tax Act (Canada) (more commonly known as a “rollover” or one of the “rollover” provisions of the Income Tax Act (Canada)). Provided the statutory requirements are satisfied, the tax otherwise payable on the transfer will be deferred (not eliminated). Fair market value should be given for the transfer and a bill of sale should be executed to document the transfer (to be available for presentation when required). Counsel should consider the need for a market appraisal of the assets.

B. Acquisition of Assets by, or Transferring Assets to, Others

Often a spouse or other relative does not contract with third parties and is not likely to incur liabilities. Accordingly, a common creditor proofing technique is to transfer some or all of an interest in property to such a relative or have such a relative purchase the property at first instance. This is often the case with the matrimonial home or “large-ticket” items such as cars and boats. To maximize the success of this technique, such a relative should own all of the interest in the property (e.g. property is often jointly owned but sole ownership may maximize asset protection), the relative should have both legal and beneficial title (e.g. the relative should not be holding the asset for the benefit of the transferor), the non-asset owning spouse should not mislead third parties such as lenders to believe he or she owns certain assets when he or she does not and transfers should be done for fair market value.

C. Financing via Debt not Equity to Obtain Priority Over Third Parties

Another technique is to provide financing (to a corporation or partnership, for example) in the form of a loan rather than the purchase of equity (e.g. shares in a corporation or partnership units), to take back security over some or all of the corporation or partnership’s assets and to register such under the personal property or real property regimes of the relevant jurisdiction(s). In this way, subject to exceptions, such security has priority over unsecured creditors and subsequent secured creditors. To maximize the success of this technique, security should not be taken when the corporation or partnership is insolvent11, the security should be granted contemporaneously with the loan, the loan and security should be properly documented (e.g. facility or loan agreement, appropriate corporate resolution and promissory note) and the lender should have proof of the advances made.

Like all techniques, though, this technique may not guarantee that assets are protected from creditors. First, if the corporation or partnership requires additional financing, certain lenders (e.g. banks and institutional lenders) will likely require the postponement and/or subordination of the repayment and security referred to above in favour of the lender such that the lender has first priority over some or all of the assets. Second, section 139 of the BIA must be complied with. If the lending arrangement is such that the lender receives a rate of interest which varies with the profits of the borrower or a share of the profits of the borrower and the borrower subsequently becomes bankrupt then the lender is not entitled to recover against the borrower’s assets until the claims of all of the borrower’s other creditors have been satisfied. Thirdly, a poorly “papered” transaction, as is often unfortunately the case, will be open to attack from creditors.

D. Using Trusts to Shelter Assets

Using a trust is another technique to try and achieve creditor proofing. A common technique is to transfer assets to a trust, of which the transferor’s spouse and child or children are the sole beneficiaries. Since the trust is a separate legal entity from the transferor, the transferor’s creditors cannot look to the property of the trust to satisfy the transferor’s debts and liabilities. To maximize the success of this technique, the “three certainties” of trust law must be satisfied and counsel should consider recommending that the transferor either not be the trustee or, if the transferor insists on being the trustee, that there be one or more trustees in addition to the transferor. Among other things, counsel should consider the tax and other implications of transferring assets to a trust.

E. Acquiring Property Exempt from Seizure

Another creditor proofing technique is, to the extent possible and/or desirable, to purchase or invest in property that is exempt from seizure by law.12

For example, under the Insurance Act (Ontario), the rights and interests of an insured in the insurance money and in the contract are exempt from the insured’s creditors if a beneficiary is designated and such beneficiary is a spouse, child, grandchild or parent of the insured.13 Also, where such a beneficiary is designated, annuity payments may also be exempt from seizure14.

RRSPs are a common form of saving and investing. If an RRSP is placed with an insurance company and there is a designated beneficiary under the Insurance Act (Ontario), the RRSP may be exempt from seizure. However, before recommending such action, counsel should seek specialized advice as, for example, not all life insurance products, annuities and RRSPs may be exempt from seizure by law (and such exemptions vary from province to province). Accordingly, to the extent it is possible and/or desirable, a client may wish to purchase or invest in property that is exempt from seizure by law as a form of asset protection.

F. Guarding Against the Limitations to Successful Creditor Proofing

Knowing how creditor proofing activities can be struck down or overturned is just as important as knowing the techniques. Set out below are the three (3) main pieces of legislation with anticreditor provisions.

i) The Fraudulent Conveyances Act

The Fraudulent Conveyances Act (Ontario) (the “FCA”) can assist a creditor in recovering both real and personal property where a debtor has transferred property with the intent to defeat, hinder, delay or defraud the rights of creditors or others.15 The FCA applies both in and out of bankruptcy and creditors under the FCA include creditors in the normal course and persons who were not creditors at the time of transfer but who later became creditors. However, such a transfer will not be void under the FCA where property was transferred for good consideration and in good faith to a person not having at the time of the transfer notice or knowledge of such intent. In other words, in such a case, the creditor must prove such intent of both the transferor and the transferee.16

In general, in the context of fraudulent conveyances, the court will look for what have come to be known as “badges of fraud”. These include:

a) the debtor was insolvent when the transfer was made;

b) the debtor was disposing of all of his or her assets just prior to the creditor attempting to enforce the judgment;

c) the price paid for the asset was clearly inadequate;

d) the transferee was a close relative, friend or business associate;

e) there was unusual haste in closing the transaction;

f) there was secrecy surrounding the transaction; and

g) the debtor continued to use the asset after the transfer.17

Accordingly, counsel should be mindful of the circumstances of the proposed conveyance and the likelihood that the transaction may be the target of a successful FCA application when advising a client about the propriety of a proposed transaction.

ii. The Assignments and Preferences Act

The Assignments and Preferences Act (Ontario) (the “APA”) can assist a creditor in recovering property from the transferee of property where a debtor who was insolvent or on the eve of insolvency made among other things, a gift, conveyance or transfer with the intent to defeat, hinder, delay or prejudice creditors or transferred property to a creditor with the intent of preferring that creditor over another creditor or creditors or the transfer had the effect of such preference.18 The APA applies both in and out of bankruptcy.

Accordingly, counsel should recommend and implement creditor proofing techniques when the debtor is not insolvent or on the eve of insolvency, where the debtor does not intend to prejudice creditors and where the creditor does not intend to prefer one creditor over another (or the effect of the transfer would be such). To the extent that “on the eve of insolvency” is a less than certain phrase, counsel should ask questions and perform due diligence as necessary to satisfy him or herself that the debtor is not “on the eve of insolvency”.

iii. The Bankruptcy and Insolvency Act

The BIA provides several ways in which transfers can be attacked and recovered by the trustee in bankruptcy. Under the fraudulent preferences provisions of the BIA (sections 95 and 96), the trustee in bankruptcy can, upon successfully proving that a creditor was preferred over other creditors (or such was the effect), set aside preferential payments and transfers of property made when the bankrupt was insolvent and the payment or transfer occurred within three months of the date of bankruptcy or, if the transferor and transferee are related, within one year of the date of bankruptcy. Moreover, under s. 100 of the BIA, a court could, on the application of the trustee in bankruptcy, review transactions made within one year preceding the date of bankruptcy and between the bankrupt and a related person (or a person not at arm’s length) and inquire into whether fair market value was given. Where the consideration for the transaction was conspicuously greater or less than the fair market value of the property or services in question, a court could, among other things, give judgment to the trustee in bankruptcy. As well, under the settlement19 provisions of the BIA (section 91), a trustee in bankruptcy can attack a contract, covenant, transfer, gift and designation of beneficiary in an insurance contract where such was gratuitous or made for nominal consideration and made within one year of the date of bankruptcy. For such that took place more than one year before the date of bankruptcy but within five years of the date of bankruptcy, the trustee in bankruptcy must prove that at the time of making the settlement the transferor was unable to pay all of its debts without the settlement property or that the interest of the transferor did not pass on the execution of the settlement.

Accordingly, counsel should ensure, to the extent possible, that creditor proofing techniques are implemented at such time and in such manner so as to minimize the chances that they will be set aside under the BIA. For example, transfers should be made for fair market value, should be made well before there are creditors or potential creditors and should be made well before the bankrupt is bankrupt or insolvent assuming that is possible.

iv. The Rules of Professional Conduct

The Rules of Professional Conduct also operate to affect, limit or prevent creditor proofing techniques. Note, for example, the following rules:

2.02(1) When advising clients, a lawyer shall be honest and candid.

2.02(5) When advising a client, a lawyer shall not knowingly assist in or encourage any dishonesty, fraud, crime, or illegal conduct, or instruct the client on how to violate the law and avoid punishment.

Rule 2.02(1) requires counsel to, among other things, properly advise of the risk and costs associated with a creditor proofing technique (e.g. that it may be set aside or attacked under the above-mentioned legislation or otherwise either because of the timing or the manner in which it is implemented). Rule 2.02(5) requires counsel to be well versed in creditor proofing techniques and the parameters or limitations set out in this paper (among other) so that counsel can comply with this rule.

All in all, effective counsel will, or should, know how to advise clients on how their interests are best served, and how to credit proof while, at the same time, being able to steer clear of subsequent successful attacks.


As outlined at the outset of this paper, though not impossible, protecting assets within the context of litigation is significantly more difficult than doing so before assets become at risk from creditors and litigation. As a result, in order to try to protect assets in this context, more than simply attempting to implement the creditor proofing techniques outlined above is necessary. Strategic planning for the litigation itself is also required. 

At each step, counsel and client must consider carefully how to respond to litigation or the threat of litigation; with a view to cost, leaving other options open in case of a change in strategy down the road, and with a view to eliminating or minimizing exposure.

A. The Threat of Litigation

Litigation usually starts with a demand letter. Not all demand letters lead to litigation. In fact, a significant percentage of demand letters do not lead to litigation. Counsel should be wary of this fact, but at the same time, view a demand letter as a wake up call. Counsel, along with the client, should:

a) objectively assess the client’s case;

b) objectively assess the opposing party’s case; and

c) analyze to what extent the client’s assets are at risk.

Part and parcel with the above review comes a review of:

a) your client’s persona (i.e. how will he or she fare in a legal battle, what is his or her appetite for fighting, etc.);

b) to the extent counsel is aware, the plaintiff’s persona;

c) the quantum of the claim vs. the plaintiff’s and defendant’s financial wherewithal; and

d) opposing counsel if retained (i.e. experience, sole practitioner vs. large firm, resources, reputation, etc.).

This analysis will allow counsel to objectively and candidly advise the client about counsel’s expectations for any litigation that results from the demand letter. Effectively, all response strategies fall into the following three (3) categories:

a) passive response;

b) active response; or

c) attempt to settle.

Responding passively means doing very little or nothing at all; the old “duck and cover strategy”. Responding actively means going on the attack from the get go. And trying to settle speaks for itself; it is a means to cut losses before more or greater losses or costs are incurred. Each strategy will be a function of the above-noted analysis and one or the others may be the appropriate strategy when all factors are taken into account. For example, if the amounts in dispute may be less than it would cost to fight even if your client has a stronger case, trying to settle or responding passively (to keep costs down) may be the way to go. On the other hand, the plaintiff may be perceived to be weak or unwilling to fund a protracted battle in which case an alpha strike of some type may be the better way to go. There is much literature on strategy, well beyond this paper’s scope, and well worth a read for the budding litigator.

B. Formal Legal Proceedings

Demand letters more often than not lead to litigation. Once formal legal proceedings (e.g. statement of claim or notice of application) have been instituted, counsel will be presented with a new set of manoeuvring parameters: the Rules of Civil Procedure (the “Rules”) and where proceedings are instituted in certain regions or courts, certain applicable practice directions (the “Practice Directions”). Moreover, there will be professional rules and obligations20 that will be applicable (as they would be at all times during one’s practice), some of which are discussed below.

Though both the Rules themselves and Rules of Professional Conduct both note that the Rules are not necessarily cast in stone, the Rules can be used to each party’s advantage where appropriate. Defending counsel should be aware therefore of the Rules that can be used to the advantage of the defending party. For example, the defending party has access to:

a) extending the time to file a defence by filing a notice of intent to defend (Rule 18.02);

b) demanding particulars (a minimum level of disclosure of material facts) of an allegation in the creditor’s pleadings (Rule 25.10);

c) moving to have the action dismissed for being frivolous, vexatious or an abuse of process (Rule 21.01(3)(d));

d) moving for summary judgment (Rules 20.01(3) and 20.04(2)(a)); and

e) counter-claims, cross-claims or third party claims (Rules 27, 28 and 29).

As well, counsel should be aware of the Rules that benefit the plaintiff in order to be ready if the plaintiff decides to avail itself of those Rules, including:

a) pre-judgment relief such as interlocutory injunctions, Anton Pillar Orders, Mareva injunctions (e.g. Rule 40);

b) enhanced examinations (e.g. Rule 31); or

c) moving for summary judgment.

Generally speaking, defendants will want to slow down a proceeding as much as legally and ethically possible. Plaintiffs tend to be very focussed at the outset but as with ordinary life, other matters come up, funds that would have gone to lawyers to fight may be needed for other things and mounting costs may dissuade further legal wranglings. The Rules, the Practice Directions and the Rules of Professional Conduct speak to delay. Counsel should be well-versed in how to slow down a proceeding without violating one of the afore-mentioned both technically and in principle. Moreover, counsel should note the commentary for Rule 4.01(1) of the Rules of Professional Conduct for lawyers in Ontario which states:

In civil matters, it is desirable that the lawyer should avoid and discourage the client from resorting to frivolous or vexatious objections, or from attempts to gain advantage from slips or oversights not going to the merits, or from tactics that will merely delay or harass the other side. Such practices can readily bring the administration of justice and the legal profession into disrepute.

And counsel should also note with particular attention, in the context of proceedings on the Commercial List, the Practice Direction which asserts that cooperation, communication and common sense (the “Three Cs”) should underlie all actions.

Keeping in mind the above, though, counsel may be able to use litigation rules (whether set out in the Rules of Civil Procedure or otherwise, when applicable) to his or her client’s advantage with the goal of, among other things, slowing down formal proceedings or exhausting the energies of the plaintiff, all with the ultimate objective of protecting the assets of the client.

C. Considering Settlement Early and on an Ongoing Basis

Settlement is another method of protecting a client’s assets. By settling on a particular monetary amount, the client may save itself from potential seizure of all of its assets or more than that settled on. The Rules of Professional Conduct encourage counsel to settle disputes: 2.02(2) A lawyer shall advise and encourage the client to compromise or settle a dispute whenever it is possible to do so on a reasonable basis and shall discourage the client from commencing useless legal proceedings. Settlement provides, potentially, an excellent exit strategy in those circumstances where it is better for the defendant to cut its losses by negotiating a deal with the creditor. In addition to the possibility of settling for a monetary amount less than that which the defendant may have been liable for, a defendant may also settle payment terms such as structured or periodic payments. In such a way, the defendant’s assets are protected in the sense that the defendant’s cash flow position may be maintained and/or improved and the defendant may be able to invest the monies that would otherwise have been payable if a structured or periodic payment plan was not settled on.

D. After Judgment

If, unfortunately, the litigation is lost and judgment is awarded against the client, there are still options available to try to protect or minimize the exposure to the client’s assets. First and foremost is the option of filing an appeal. In the context of money judgments, filing an appeal stays enforcement until the appeal is heard, which could be one or more years away.

Moreover, filing an appeal may refocus settlement discussions as the plaintiff will be aware that recovery, if any, will be some time off and after more legal costs.

Secondly, a BIA proposal may be a way to reduce the exposure to creditors including judgment creditors by making a proposal to compromise claims. Though there are costs associated with a BIA proposal, the benefits of a successful proposal may exceed those costs.

Counsel and client should also examine and, to the extent possible, utilize, the various laws governing debt-collection and exemption of property from seizure.


Creditor proofing is, or should be, a fundamental goal of all persons. This paper has discussed many creditor proofing techniques in and outside of the context of litigation and has discussed which creditor proofing techniques are likely to be more successful than others in such contexts. This paper has also addressed, and stressed, the need for counsel to be well versed in the limitations to successful creditor proofing as a result of substantive and procedural law and professional rules and obligations and to always consider the timing of the implementation of creditor proofing techniques. In so doing, it is hoped that counsel can advise his or her client not only how best to protect assets but also when an asset protection technique is not legally possible, or, is legal but its ultimate success may not be likely.