Full question:
I would like to form a corporation or LLC (preferably LLC) prior to declaring personal bankruptcy. Does an LLC protect my investment from the bankruptcy court?
- Category: LLC
- Date:
- State: Florida
Answer:
If you create an LLC while knowing about an impending bankruptcy, the assets in the LLC might be seen as a fraudulent transfer. This means that if you transfer assets to an LLC right before filing for bankruptcy, it could raise concerns during the bankruptcy process.
The Uniform Fraudulent Transfer Act defines a fraudulent transfer as one made by a debtor if:
- They intended to hinder, delay, or defraud any creditor, or
- They did not receive a reasonably equivalent value for the transfer and:
- They were engaged in a business or transaction with insufficient remaining assets, or
- They intended to incur debts they could not pay as they became due.
Additionally, under certain circumstances, a court may hold an individual personally liable by using the alter ego theory. This means the court can disregard the LLC's separate identity if it finds that the individual and the LLC are effectively the same.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.