If I start an LLC, will my business be protected from my personal debt or will they come after what my business brings in?
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If I start an LLC, will my business be protected from my personal debt or will they come after what my business brings in?
I want to start my own business but I am in a lot of personal credit card debt
and I also owe stae unemployment money. I’m afraid that if I start a business,
creditors/IRS will come after me for what I owe. Once I start making money I
will of course start paying off what I owe.
Asked on March 27, 2018 under Business Law, New Jersey
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 6 years ago | Contributor
The business will not be protected from your personal debt for two reasons:
1) The business is an asset of yours (something you own with, presumably, value). Your creditors can go after your interest in your business the same way they can after your interest in other assets you own, like your home or a car.
2) Since you will be doing this *while* you owe a great deal of money, anything you put into the business (investments into the business; property your give to or buy for the business to use, like computers or office equipment; operational funds you provide; etc.) could be seen as a transfer made to defraud (hide assets from) creditors. However, the law does not let you transfer money or assets while in debt to keep it away from creditors; creditors can bring legal actions to reverse those transactions and pull the money or assets back, so they can get at them.
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