can creditors come after llc for personal debt [Deep Research]

Last updated : Aug 27, 2022

Can personal debt affect my LLC?

A corporation is a separate legal entity from its shareholders. For such reasons, corporations or LLCs can protect your personal assets from debts and lawsuits against your business. If you are sued for personal debt, you can lose personal assets, but your business will remain safe.

Does having an LLC protect my personal assets?

Understanding an LLC's Limited Liability Protection The owners' personal assets such as cars, homes and bank accounts are safe. An LLC owner only risks the amount of money he or she has invested in the business.

Does an LLC protect owners from personal responsibility from debts and liabilities?

What Type of Liability Protection Do You Get With an LLC? The main reason people form LLCs is to avoid personal liability for the debts of a business they own or are involved in. By forming an LLC, only the LLC is liable for the debts and liabilities incurred by the business—not the owners or managers.

Does an LLC protect your personal credit?

Only individuals who cosign or guarantee an LLC loan have their personal credit affected by it. If you don't cosign or guarantee a loan to the LLC, your credit report is safe.

Can a personal debt be taken from a business account?

If you are an owner of a corporation or LLC, you are a separate entity from the business, and the business isn't responsible for your personal debts. But while creditors generally can't take your business assets to pay your personal debts, they can take funds your business owes you.

Can my business bank account be garnished for personal debt?

Business Bank Account Protection and Garnishment A person who owns a business can keep funds in their business rather than distributing the funds to themselves. If the creditor has a judgment against the individual and not the business, the creditor cannot garnish the business bank account directly.

Can IRS come after an LLC for personal taxes?

While the IRS can't levy your business account for your personal back taxes, the IRS can freeze and seize your company's assets to satisfy your tax debt if your business has a sizable tax liability. In most cases, for the IRS to implement a levy, your business must have: A substantial amount in back taxes.

What are the disadvantages of an LLC?

• Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. States charge an initial formation fee.
• Transferable ownership. Ownership in an LLC is often harder to transfer than with a corporation.

How does having an LLC protect you?

Personal asset protection. An LLC provides its owner or owners with limited liability. This means that means you—the LLC owner—are generally not personally liable for any debts incurred by your LLC business or most business-related lawsuits.

Are you personally liable with an LLC?

Under all LLC statutes, the general rule is that the members of the LLC are not personally liable for obligations of the LLC, subject to such exceptions as personal guarantees or “piercing” of the organizational veil.

What liability do LLC members have?

Liability of members Members are not liable for an LLC's debts or obligations. Members are, however, obligated to make required capital contributions. The operating agreement may set forth the penalties for failing to do so.

What happens if a company Cannot pay its debts?

If your company cannot pay its debts Your limited company can be liquidated ('wound up') if it cannot pay its debts. The people or organisations your company owes money to (your 'creditors') can apply to the court to get their debts paid.

Can business collections affect personal credit?

Business debts don't impact personal credit if the company and the owner are separate legal entities. Loans against your retirement plans like 401 (k) also won't appear on personal credit reports.

How do I protect my personal assets from a lawsuit?

1. Domestic asset protection trusts.
2. Limited liability companies, or LLCs.
3. Insurance, such as an umbrella policy or a malpractice policy.
4. Alternate dispute resolution.
5. Prenuptial agreements.
6. Retirement plans such as a 401(k) or IRA.
7. Homestead exemptions.
8. Offshore trusts.

How do I separate my personal and LLC?

1. Put your business on the map.
2. Get a business debit or credit card.
3. Open a business checking account.
4. Pay yourself a salary.
5. Separate your receipts and keep them.
6. Track shared expenses.
7. Keep track of when you use personal items for business purposes.
8. Educate your employees and partners.

Does personal debt affect business loan?

Could my personal debt impact a business loan? Personal debt has the potential to lower your prospects for being granted a business loan, as does a poor personal credit report. This can depend on such factors as how your company is structured and whether your business also has its own credit score.

Can my wife's bank account be garnished for my debt?

a judgment creditor of your spouse can garnish your joint accounts, and. if you have your own separate bank account and a judgment is taken against your spouse, that creditor can also garnish your separate account to pay for your spouse's debt.

What type of bank accounts Cannot be garnished?

In many states, some IRS-designated trust accounts may be exempt from creditor garnishment. This includes individual retirement accounts (IRAs), pension accounts and annuity accounts. Assets (including bank accounts) held in what's known as an irrevocable living trust cannot be accessed by creditors.

Can creditors look at your bank account?

To find out if you've got savings or are expecting a pay out, your creditor can get details of your bank accounts and other financial circumstances. To do this they can apply to the court for an order to obtain information. You'll have to go to court to give this information on oath.

How do creditors find your bank accounts?

A creditor can merely review your past checks or bank drafts to obtain the name of your bank and serve the garnishment order. If a creditor knows where you live, it may also call the banks in your area seeking information about you.

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so there comes a time where all of us at one point or another or at least the greater majority have made the biggest mistake and that's paying a debt collector and paying collections now i know what you're probably thinking and you're probably thinking well irv i want my credit score to go up or i'm tired of having a 500 credit score or i'm tired of being in the low 600s so i'm trying everything in my power to boost my credit score and look i get it i've been there but here's the thing if you've paid collections in the past and if you've ever paid a collector did you notice that when you checked your credit report the following month well your credit didn't shoot up at all and in some cases your credit score either remained the same or it actually went down you see paying a collection agency and paying a debt collector does absolutely nothing for your credit score and that's why i strongly recommend for you to watch this video for you to find out why you should never pay a collection agency and don't forget to share this information with someone that you know could be committing the mistake of paying a collection company thinking that their credit score is going to go up or has paid a collection agency and hasn't seen their credit score go up at all now you're probably wondering okay irv well they've sent me these letters stating that company xyz that they've now taken over the debt of the other credit card company or maybe a phone company that i owed money to so what do you mean i don't have to pay these collection agencies they have my name they have my address i think i owe them money let me help you out because this is how it works with collection companies when the original creditor let's say credit card company abc has been trying to get someone to either pay their debts or pay the amount of money that they owe because they fall in behind for whatever reason that is after 180 days whether it's at the end of the year or let's say after 180 days they decide to then do what's called a charge off and a charge off simply to that means we are now writing this off of our books because of tax purposes we've now taken a loss on this so now they're going to do one of a couple of things they're either going to charge it off and call the insurance company let them know that hey we've taken a loss on this or within that charge off they then call collection agencies and then they sell that portfolio of charge-offs which is a pool of hundreds if not thousands of different charge-offs from different people not just one person and now what do these collectors do in these collection agencies well they buy this portfolio of debt from the original creditor for again hundreds if not thousands of people for pennies on the dollar literally getting a portfolio of a thousand names and a thousand different statements for ten maybe even fifteen dollars when in return it's already been written off as a tax loss to these original creditors so now these collection agencies are just looking to double dip on what another company has already profited off of so first things first one of the reasons you are not obligated or even should be paying these debt collectors is because legally you never made a legal binding contract with them stating that you are going to get a loan from them and that you will be paying them back that's between you and the original creditor which remember it's already been charged off the second reason is because remember these collection agencies already purchased that debt from the original creditor but here's how that works when they purchased that debt they were only buying these snapshots of these contracts for the original contract but they don't actually own the original contract that's right so they don't have a physical copy of your web signature verifying and validating that you actually owe them that money and that you're indebted to them and the reason why more often than not they don't have that information even though they'll send you these harassing letters that say hey we've been assigned by xyz credit card company that you owe them we've not taken over the file to legally come after you is well it would cost them significantly more money because remember they're buying in the thousands when it comes to these portfolios to actually get their hands on that information from the original credit card company that someone owes the money to let's say that this cup or this mug signifies the debt that they are selling off to these collection agencies and the markers represent all the debt that's being sold off well here's the thing all the debt that's being sold off in here doesn't have the actual original contracts in it because they're all right here and that's what makes it more expensive for them to buy on the back end and at the end of the day it is a business transaction for them and an extremely risky one at that let's say that they buy 10 different charged off accounts from these original creditors with all the information well guess what they now have to go through the same process of trying to get someone to actually cough up the money that they owe because it's already been proven that the person doesn't have any money or has shown that they cannot pay that amount of debt within the last 180 days leading up to them going into collections and becoming an official charge-off so rather than running the risk of them not possibly seeing a return on their investment by purchasing maybe a more expensive original contract for the debt owed these companies will go ahead and settle for hundreds if not thousands of different collections within one big debt portfolio because if let's say they for whatever reason aren't able to get any money on it well it only cost them 10 15 bucks for again that big portfolio to begin with and this is why you always see them calling you hundreds if not thousands of times a day calling your friends calling your relatives and now it gets super embarrassing because now everyone's knowing or everyone thinks at least that you owe these different companies this amount of money and not only is that a form of harassment but you can also send them a letter that's a seize to the cis if they continue to call you these companies don't own the original contract they don't have any hard evidence on you and in some cases they're not even licensed to collect debt in your state and this is exactly why you never want to pay collectors because at the end of the day they're just trying to get money out of you this is why they're so quick to settle a debt after trying to harass you calling your mom calling your dad calling everyone that could possibly be tied to you and by the way i never recommend for you to be in direct communication with any type of collection agency via phone if you are and you are trying to dispute or if you are trying to get some type of debt validation which we'll talk about here in just a second then i recommend doing all of that correspondence via mail again companies like this have hundreds if not thousands of different people that they have in rotation constantly getting caught constantly

Thanks for your comment Hollis Ganison, have a nice day.
- Broderick Bourgois, Staff Member

so i get this question a lot from my business clients that are maybe thinking of winding down their llc or closing it or just you know they're starting to rack up some debt and thinking well if this goes south um do all these debts affect my personal credit and the answer is it might it really depends on the type of the debt and the circumstances behind you know why you're closing the entity right so llc's the appeal with an llc is it it is this hybrid editing where it provides you limited liability protection that you might get with a corporate structure but you do have a little more flexibility in operations and certain tax benefits with having an llc right so llcs can be passed serenities they're less formalities under state law so an llc can or cannot have an operating agreement it's recommended it does have one but it doesn't have to do as much kind of admin as a corporate entity would so you don't have to do shareholder meetings you don't have board of directors meetings you don't have um you know to take minutes you have to don't have to do anything like that with an llc for the most part um so so an llc it is a legal person right it's a entity created under state law you've got your own name you've got your own tax id number under it business address llcs can enter into contracts they can buy assets they can sue people and they can be sued right and so that's your first line of dis defense as a member is look this is the entity that's doing all the business if there's something that goes wrong it's on the hook i should be insulated right now with debts though it can be tricky if you as the owner have the personal guarantee on the debt so what what an example of that would look like if you look at a company's balance sheet they might have accounts payable right so you have vendors that you owe money to maybe you went down to your bank and you got a business line of credit open um maybe this you got sued and so now you got to book an accrual for a lawsuit um that that the llc has to pay to um you know another another party and then maybe you've got some credit card debt for the llc your personal credit could be impacted if you had to sign a personal guarantee to get that liability open right so the most common example where i see this is a closely held business structure so it's an llc that's got one owner two owners three maybe it's not a big publicly traded company okay so it's a small company and you decide you want to go to your bank and you open a line of credit or you open a credit card and during the application process it is opened under the llc name and tax id number but the bank requires a personal guarantee from one or more of the owners and this is incredibly commonplace i don't see any instances now where a closely held company can even open a credit card for their llc unless the owner provides a personal guarantee and the banks do that for obvious reasons right they want to make sure that you don't just rack up a hundred thousand dollars worth of credit card debt and then just cut and run and nobody's on the hook for it so they're going to ask you you know for your personal information um to identify who you are so you give them your name social security your social security number but then in that contract it's it's going to say that look this is the llc debt but if you don't pay um we're coming after you personally and if you sign a contract saying that they're allowed to do that so um yeah very important to be mindful of what kind of debt you have in the llc it's certainly going to impact um you know the creditors creditor's recoverability when it comes to you personally um so yeah read the fine print read the fine print on those credit card agreements on the line of credit you might get from the bank um very very important okay thanks

Thanks innkommeZ your participation is very much appreciated
- Broderick Bourgois

About the author

Broderick Bourgois

I've studied screenwriting at Lake Washington Institute of Technology in Kirkland and I am an expert in social stratification. I usually feel cynical. My previous job was environmental technician I held this position for 2 years, I love talking about sculling or rowing and football. Huge fan of Niccol+� Machiavelli I practice squash and collect military items.