Starting a new business as an LLC

[stressedout2]

I'm deep in debt and most is in collections. This debt is from a now closed business that was a sole prop. and personal credit cards. All the debt is unsecured.

No payments have been made for 24 months. No lawsuits yet.

I have moved to another state.

I want to re-open a similar business.This time it will be an LLC.

Can the creditors attach asset's of the new LLC if they sue and get a judgement?

I would also be living at the new business address.

[HHM]

What sort of assets would the business have?

In any event, to answer the question. If the creditor is particularly aggressive, the answer is yes...sort of. In so far as the debts are your personal liability, your ownership in the LLC is a personal asset. As such, if a creditor were to get a judgment, they could grab your ownership interest in the LLC and do whatever you could with the LLC, e.g. liquidated.

Granted, for the average credit card debt, going to that extreme is rare, but understand, the LLC is not going to protect the LLC from your personal debts. LLC's (or any corporate entity) only protect YOU from some types of claims against the LLC, it doesn't work vice-versa.

[stressedout2]

I would be leasing the building,and only have a small amount of tools,and inventory of maybe 10,000.00.

I've read that in Tn. personal creditor's that sue and get a judgement have to get what is called a charging order,and it's rare that they do that. The business would not be tied to my ss number,only identified by a EIN.

This is from nola.com,

Charging Order

All states permit personal creditors of an LLC owner to obtain a charging order against the debtor-owner’s membership interest. A charging order is an order issued by a court directing an LLC’s manager to pay to the debtor-owner’s personal creditor any distributions of income or profits that would otherwise be distributed to the debtor-member.

However, in most states, creditors with a charging order only obtain the owner-debtor’s “financial rights” and cannot participate in management of the LLC. Thus, the creditor cannot order the LLC to make a distribution subject to its charging order. Very frequently, creditors who obtain charging orders end up with nothing because they can’t order the LLC to make any distributions. As a result they are not a very effective collection tool for creditors.

Example: The collection agency obtains a charging order from a court ordering the Acme LLC to pay to it any distributions of money or property the LLC would ordinarily make to John until the entire $38,000 judgment is paid. However, if there are no distributions, there will be no payments.

The charging order remedy without any right to order distributions is so weak, many creditors don’t even try to use it.

In about half the states, the charging order is the exclusive (only) legal remedy personal creditors of LLC members have. (See the 50-state chart below.)

[HHM]

That is basically correct. Just understand, the risk is not zero.

It is not that hard to track down a business owner, generally, your name will be associated with the business at your states secretary of state office, so any basic skip-trace search will show it.

[stressedout2]

Thanks HHM,I didn't think of the skip trace showing a record of a new business formed as an LLC.

Tn. has a 10,000 personal property exemption,how would that come into play with a judgement?

[HHM]

That is something you would need to ask a TN bankruptcy lawyer.

It may or may not come into play. First issue, how does TN define personal property, is the exemption limited to certain types of personal property. Second, how has that exemption been applied to the business owner scenario. Third, it would depend on what the charging order is going after...if part of the charging order goes after income/distributions from the LLC to you, I doubt the exemption would apply. If part of the charging order allows taking assets of the LLC (which it doesn't sound like it would in TN), then the issue is 50/50. Strictly speaking, the LLC owns the property and companies don't get the exemption.

You know, instead of messing around with all these issues, you could/should just file BK and bring 100% certainty to the status of your debts and eliminate them.

[justbroke]

I like the suggestion to just do it... file bankruptcy. Using an LLC to shield personal debts that are already in default (or about to be in default), is not a 100% guarantee. As HHM eluded to earlier, if the LLC is not set up correctly, the creditor could actually step in and manage the LLC and force liquidation. This is where the bylaws of the LLC are extremely important.

However, and HHM said this, no simple credit card debt creditor is going to go through all that to pierce the corporate veal to get at very little in assets anyhow. It could be problematic where the LLC had significant assets (and don't ask me what "significant" means).

[stressedout2]

I think I'm over the exemptions as I have several vehicles . I have a 92 van,97 truck,85 car,an 01 car I inherited,a 90 boat,and a 87 boat. All were bought new by me long before I ever incurred any debt. Would like to be able to keep them.All are in better than average condition.

[HHM]

Sure, we all like to have our cake and eat it too...

Once you get over the denial of your situation and actually decide to do something about it, the "stuff" is not really going to matter that much. Stuff can be replaced, living a stress free life, having a meaningful financial future, that can't be had until you decide to do something about your debt.

[GoingDown]

I think I'm over the exemptions as I have several vehicles . I have a 92 van,97 truck,85 car,an 01 car I inherited,a 90 boat,and a 87 boat. All were bought new by me long before I ever incurred any debt. Would like to be able to keep them.All are in better than average condition.

I can see why this person may not want to file BK right now. He or she might end up losing the vehicles to the bankruptcy court.

The LLC won't stop the creditors, but it will make it a little bit harder for them to do what they need to do to get paid.

In my vast experience of playing chicken with creditors-- not filing bankruptcy, and just waiting them out until the statute of limitations expired on all my remaining debts-- I have discovered that most of them huff and puff and bluff their way through everything. They leave scary messages on the voicemail and threaten to sue, but very few of them ever follow through with it, and in my case one of them did sue, got a judgment, but then never did anything with the judgment. They didn't even attempt to take my used truck. Why? In most cases, they don't want to waste a lot of time, money, and effort going after a debtor who is making it difficult for them to collect anything. They really don't want used vehicles. They want cash. They love to seize checking accounts and savings accounts. They love to garnish wages. And to a lesser extent, they love to slap a lien on real estate. If you don't have these things, they usually lose interest in you.

Notice I used the word "usually." There are some horror stories out there where they will occasionally come after old ladies on social security, but it is very rare.

The key, from my experience, is to communicate with them as little as possible. The only communication I gave them was a letter telling them to stop calling me and informing them that I was judgment proof. That tells them that you have taken away their main method of getting paid-- calling you on the phone. And you have informed them that they probably won't get anything even if they sue you.

When they encounter resistance, they usually move on to lower hanging fruit.

Your account then gets put on the back burner and they passively monitor it for "collection triggers" usually using one of the services from our great friends at Trans Union, Experian, and Equifax.

But it is a roll of the dice. They may come after you aggressively and take every non-exempt asset. I doubt it, but it is possible.

What I would do is go to a few free consultations with bankruptcy attorneys and see what they have to say about your situation. Ask them if you will lose your vehicles, etc., if you file BK. And then decide which way you want to go.

[HHM]

Really, unless these are some sort of exotic cars, I can't imagine they have a "combined" value of more than $10K, if that. A 92 van, a 97 truck, an 85 car, an 01 car and a 90 boat and an 87 boat. Hell, the trustee isn't going to want to mess with that lot. At most, he could sell them for scrap. There is a definite disconnect in priorities

[stressedout2]

Goingdown,thanks for your reply.
These vehicles and boats were bought and paid for many years ago,they would mean little to most people.To me they mean a lot,it's all I have to show for 40 years of work.They are in above average cond.
I was out of debt in 2000.I owned a business with no debt,I owned a home that was paid for.I lost the business and the home.

I have bought nothing for myself costing over 500 in over 10 years.
The debt was incurred as a result of taking care of my mother who had alzheimers disease for eight long years.The last three years of being in business were a loss due to me rarely being there and employees stealing from me. I finally closed the business in 2010.

I'm now in my late 50's unable to find a job as I am partially handicapped and was self employed most of my life.

I'm just trying to get my life back together.

As far as the KB book value,looks like in good cond there value is 18-20 thousand.

I'm living in an old rv that i bought new in 95,it is at or below the Tn exemption of 5,000

[HHM]

I am sorry, I don't play sob stories and I don't respect "victim" mentality. If you are really trying to get your life back together, holding onto a bunch of crap vehicles (let's be honest, that is what they are) and using them as an excuse to do nothing is not going to get your life back together.

I get it, no one WANTS to file bankruptcy, but you need to step back and look at things objectively.

[GoingDown]

Really, unless these are some sort of exotic cars, I can't imagine they have a "combined" value of more than $10K, if that. A 92 van, a 97 truck, an 85 car, an 01 car and a 90 boat and an 87 boat. Hell, the trustee isn't going to want to mess with that lot. At most, he could sell them for scrap. There is a definite disconnect in priorities

I am not familiar with Tennessee laws for exemptions, but let's just take Arizona law, for example:

"Up to $5,000 in equity for ONE vehicle."

One vehicle.

That's all.

The rest would have to be liquidated for whatever they could get for them, if they followed the law strictly.

If the trustee wouldn't be interested in those vehicles, I doubt the debt collector would be interested in them, either.

[GoingDown]

Goingdown,thanks for your reply.
These vehicles and boats were bought and paid for many years ago,they would mean little to most people.To me they mean a lot,it's all I have to show for 40 years of work.They are in above average cond.
I was out of debt in 2000.I owned a business with no debt,I owned a home that was paid for.I lost the business and the home.

I have bought nothing for myself costing over 500 in over 10 years.
The debt was incurred as a result of taking care of my mother who had alzheimers disease for eight long years.The last three years of being in business were a loss due to me rarely being there and employees stealing from me. I finally closed the business in 2010.

I'm now in my late 50's unable to find a job as I am partially handicapped and was self employed most of my life.

I'm just trying to get my life back together.

As far as the KB book value,looks like in good cond there value is 18-20 thousand.

I'm living in an old rv that i bought new in 95,it is at or below the Tn exemption of 5,000

I completely understand what you mean.

I didn't like the idea of the bankruptcy court going through my personal matters, etc., and decided I would just take my chances and play chicken with the creditors. It was scary at first, but after awhile I figured out that they want to make money fast and easy. The more difficult you make it for them, the less interested they will be in you.

Just remember, the less you communicate with the debt collectors, the better. The less they know about you, your assets, and your situation, the better.

Anything you say will just be turned around and used against you.

Now, did you ever say whether or not you had wages that could be garnished? If you can't afford to lose 25% of your wages to garnishment, then bankruptcy may be the only option. If you're self-employed, on the other hand, well, let's just say that is the debt collector's worst nightmare. Their odds of collecting anything are very low. I've heard them talk about it on other forums.

http://www.bkforum.com/showthread.php?67251-Exempt-funds

As for checking accounts, Social Security, etc., read the stickie above called "Exempt Funds." There is a huge amount of information in it. I learned a lot from it myself.

Search google for more info about making yourself judgment proof. (and yes, I know, people now call it "collection proof", but I like the way judgment proof sounds). I should write a blog about my experiences with it.

Being judgment proof is not for everyone. You are rolling the dice. But I found it to be the easiest and cheapest way to go for me. The path of least resistance. And I'll admit it. I liked playing chicken with the debt collectors.


P.S.-- StressedOut2, there are certain things I dare not say on a public forum about these issues, but if you want more information, just send me a private message, and I will tell you.