Can creditors freeze an LLC bank account for personal debt judgment?

Full question:

can creditors freeze a llc bank account for judgement on personal debt?

Answer:

Creditors may be able to challenge LLC assets as fraudulent conveyances. For instance, transferring assets to an LLC just before filing for bankruptcy can raise suspicions. According to the Uniform Fraudulent Transfer Act, a transfer is considered fraudulent if:

  • The debtor intended to hinder, delay, or defraud any creditor, or
  • The debtor did not receive a reasonably equivalent value for the transfer and:
    • Was engaged in or about to engage in a business with unreasonably small assets, or
    • Intended to incur debts beyond their ability to pay.

Additionally, courts may disregard the separate identity of the LLC and hold shareholders, officers, or directors personally liable. This is known as piercing the corporate veil, which can occur if there is evidence of fraud, illegality, or misrepresentation, or if the corporation did not comply with incorporation laws, commingled funds, or was undercapitalized.

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.

FAQs

Generally, a business account cannot be garnished for personal debt. However, if the business owner has commingled personal and business funds, creditors may argue that the business account is subject to garnishment. Courts may also pierce the corporate veil if they find evidence of fraud or improper conduct, potentially allowing creditors to access business assets for personal debts.

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