Winning a judgment is a big step toward getting paid, but it doesn’t guarantee the money will actually come in. Sometimes debtors hide behind business entities—such as corporations or LLCs—to shield themselves from personal liability. These companies may have little or no assets, making it nearly impossible to collect. When this happens, one legal strategy comes into play: piercing the corporate veil.
This tactic allows creditors to go after the individuals who control the business, rather than being limited to the company’s assets. While it’s not an option in every case, understanding when and how it works can be the key to turning an unpaid judgment into real recovery.
What Does “Piercing the Corporate Veil” Mean?
Corporations and LLCs are considered separate legal entities from their owners. This separation is meant to protect owners from personal liability for the company’s debts. However, courts will sometimes disregard that separation if the business structure is being abused.
When a court “pierces the corporate veil,” it treats the company’s debts as if they were the personal debts of its owners, officers, or directors. This means a creditor can go after personal assets—such as bank accounts, real estate, or other property—to satisfy the judgment.
Signs That Veil Piercing May Be Possible
Courts don’t pierce the corporate veil lightly. They look for specific signs that the corporate form is being misused, including:
- Commingling of funds – The owner uses the business account like a personal bank account, paying personal expenses from company funds.
- Undercapitalization – The business was never given enough money to operate, making it clear it couldn’t meet its obligations.
- Failure to follow corporate formalities – No separate bank accounts, no meetings, and no records of company decisions.
- Fraud or misrepresentation – The business was used to commit fraud or to intentionally avoid paying debts.
The more of these factors that are present, the stronger the case for veil piercing.
Legal Steps to Pierce the Veil
If you believe the debtor is hiding behind a sham corporation or LLC, the process usually involves:
- Investigation and asset search
Before going to court, a creditor or their attorney will gather evidence—such as financial records, business filings, and transaction histories—to show how the company and its owner are intertwined. - Filing a motion or separate lawsuit
Depending on the jurisdiction, you may need to file a specific request with the court that issued the judgment, or bring a separate action against the owner. - Presenting evidence to the court
This is where you demonstrate the misuse of the corporate form—commingling funds, lack of records, fraud, or other misconduct. - Obtaining a ruling
If the court agrees, it will hold the owner personally liable for the company’s debt, opening the door to collect from personal assets.
Why This Strategy Can Be Effective
Piercing the corporate veil removes the “shield” that dishonest debtors use to protect themselves. Instead of being limited to a bank account with $5 in it, a creditor might be able to collect from the owner’s personal property, vehicles, investment accounts, or other income sources.
However, it’s important to note that veil piercing is fact-intensive and not always granted. The debtor’s conduct must be more than just poor business performance—it must involve abuse of the corporate structure.
The Role of Experienced Legal Counsel
Because the standards for veil piercing vary from state to state, and the process can be complex, having an experienced Judgement Collection Attorney is critical. Skilled attorneys know how to:
- Conduct thorough investigations into business ownership and finances.
- Identify red flags that support a veil-piercing claim.
- Navigate procedural requirements to bring the claim in court.
- Enforce the judgment once personal liability is established.
Without this guidance, creditors may waste time chasing a corporate shell while the real assets remain out of reach.
Preventing Debtors from Playing “Hide-and-Seek”
Sometimes, quick action after winning a judgment can make a difference. For example, filing liens, freezing accounts, or requesting discovery can prevent assets from being transferred to hidden accounts or related companies. If a debtor begins moving money out of a business soon after the judgment, that activity can strengthen a case for piercing the veil.
Final Thoughts
Debtors who misuse corporations or LLCs to dodge judgments can be frustrating, but the law provides a way to hold them accountable. By understanding the signs of abuse, gathering strong evidence, and working with experienced counsel, creditors can break through the protective barrier and reach the assets that will satisfy their judgment.
If you believe your debtor is hiding behind a sham company, acting quickly and strategically may be the key to turning a paper judgment into real payment.