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

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?

Category: Corporations
Date: 04/07/2025
State: Missouri

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

Can a business account be garnished for personal debt?

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.

Can my business bank account be garnished for a personal judgment?

A business bank account is typically protected from garnishment for personal judgments. However, if personal and business finances are mixed, creditors may seek to access the business account. Courts can pierce the corporate veil if they find fraudulent behavior or failure to adhere to corporate formalities, which could expose business assets to personal creditors.

How do I protect my bank account from a judgment?

To protect your bank account from a judgment, keep personal and business finances separate. Use proper business structures, like an LLC, and maintain adequate capitalization. Additionally, consider consulting an attorney about asset protection strategies and legal exemptions that may apply to your situation, such as homestead exemptions or retirement account protections.

Can creditors freeze a business bank account?

Yes, creditors can freeze a business bank account if they obtain a court order, typically through a judgment. This is often part of the garnishment process. If the business owner has mixed personal and business funds, creditors may argue that they can access business accounts to satisfy personal debts. Maintaining clear financial separation is crucial.

Can a personal creditor go after your LLC?

A personal creditor can pursue an LLC's assets if they can prove that the LLC is being used to shield personal assets fraudulently. If the creditor can demonstrate that the LLC was formed to evade debts or that personal and business finances are intertwined, they may be able to pierce the corporate veil and hold the owner personally liable.