Home-Based business

[chris153624]

Jurisdiction

New York

Let's say that I run a home-based business (LLC) and I get a judgement on my business and the business goes bankrupt.

Can they go after my home which is in my name and is protected by a homestead exemption (The value of the house is below the exemption amount)

Thanks.

 

[army judge]

Can they go after my home which is in my name and is protected by a homestead exemption (The value of the house is below the exemption amount)

If your business is properly organized as a corporation or LLC, you and your business are separate legal entities.

You can't be held personally liable if your business can't pay its debts, as long as the expenditure was business-related.

(If your business buys a yacht that has nothing to do with the business and that it can't pay for, don't expect that your personal assets won't be at risk if the business fails to make payments.)

Other "but onlys" apply and even when the expenditure was legit, your personal assets might still be at risk depending on how the debt was secured and the state where you operate.

If you have financial legal worries, you can seek a free consultation with a bankruptcy attorney in your county or city where you reside.




Asset Protection


When You Might Be Personally Liable for LLC or Corporate Debt





Does an LLC or S-Corp ensure that personal assets cannot be seized? - Quora

 

[chris153624]

Thanks army for your reply

Let me expand this a little:

In case a "corporate veil" is pierced can I file for bankruptcy myself (as a person) and have my home protected by the homestead exemption?

 

[army judge]

Thanks army for your reply

Let me expand this a little:

In case a "corporate veil" is pierced can I file for bankruptcy myself (as a person) and have my home protected by the homestead exemption?

Filing for BK is never a problem.

If you file for BK, your goal is to convince the Federal Bankruptcy Court Judge (and the trustee) to accept the filing and discharge your debts.

The answers you're seeking are different for each citizen based upon a myriad of factors.

I suggest you speak to some insurance agents about securing insurance to protect your assets.

I also suggest you make an appointment with a local BK attorney to discuss the specifics and particulars about your concerns.

Most attorneys offer the initial consultation without charge or further obligation.

 

[adjusterjack]

In case a "corporate veil" is pierced can I file for bankruptcy myself (as a person) and have my home protected by the homestead exemption?

Your home is exempt from judgment even if you don't file bankruptcy.

See NY Civil Practice Law and Rules - Section 5206.

New York Civil Practice Law and Rules Law § 5206 (2020) - Real Property Exempt From Application to the Satisfaction of Money Judgments. :: 2020 New York Laws :: US Codes and Statutes :: US Law :: Justia

Note that the amounts exempted vary depending on where in NY State your home is located.

 

[zddoodah]

Let's say that I run a home-based business (LLC) and I get a judgement on my business and the business goes bankrupt.

Two assumptions here: (1) "I get a judgment on my business" means that someone sues the LLC and obtains a judgment against the LLC; and (2) "the business goes bankrupt" means that the LLC files a bankruptcy petition (presumably under either Ch. 7 or Ch. 11). Are both of those things correct? If so, what is the status of the bankruptcy case? If either of these things is incorrect, please explain what you mean.

Can they go after my home which is in my name and is protected by a homestead exemption

Anyone "can go after" anything. Whether you are personally at risk depends on things you didn't tell us, including whether you signed any sort of personal guarantee for the obligations on which the judgment is based or are otherwise personally liable. In other words, the answer depends on the basis for the judgment and other facts that may be relevant.

In case a "corporate veil" is pierced can I file for bankruptcy myself (as a person) and have my home protected by the homestead exemption?

Of course you "can file." Beyond that, this is fact-specific.

 

[chris153624]

Thanks everyone

Two assumptions here: (1) "I get a judgment on my business" means that someone sues the LLC and obtains a judgment against the LLC; and (2) "the business goes bankrupt" means that the LLC files a bankruptcy petition (presumably under either Ch. 7 or Ch. 11). Are both of those things correct? If so, what is the status of the bankruptcy case? If either of these things is incorrect, please explain what you mean.



Anyone "can go after" anything. Whether you are personally at risk depends on things you didn't tell us, including whether you signed any sort of personal guarantee for the obligations on which the judgment is based or are otherwise personally liable. In other words, the answer depends on the basis for the judgment and other facts that may be relevant.



Of course you "can file." Beyond that, this is fact-specific.

both of your assumptions are correct (in reality there is no bankruptcy case. It's just a made up scenario to find out how things work)

personal guarantee? I don't think there is one. I operate a rebuild/restoration of cars/car parts out of my house and sell stuff on ebay/amazon

 

[PayrollHRGuy]

I operate a rebuild/restoration of cars/car parts...

That does create some amount of possible liability. You should consider insurance.

 

[zddoodah]

both of your assumptions are correct (in reality there is no bankruptcy case. It's just a made up scenario to find out how things work)

personal guarantee? I don't think there is one. I operate a rebuild/restoration of cars/car parts out of my house and sell stuff on ebay/amazon

Since you took the time to organize an LLC, I assume you're aware that one of the primary purposes of the LLC business form (as with a corporation) is limited personal liability for the owner(s) of the LLC. Note that I used the word "limited" not "non-existent" when referring to personal liability.

Often, when a corporation or LLC seeks credit, the creditor will require a personal guarantee from one or all of the owners. This almost universal with single member LLCs. If your LLC fails to pay a contractual debt, and if you have personally guaranteed the debt, then you are personally liable for the debt (regardless of whether the LLC has filed bankruptcy.

The other primary basis on which the owner(s) of an LLC could be personally liable for an obligation of the LLC is something called piercing the veil (commonly, "piercing the corporate veil," but the same concept applies to LLCs). A creditor may seek to "pierce the veil" if there is evidence that the owner(s) of the LLC are disregarding the legal separateness between himself/herself/themselves and the LLC. There are lots of factors that go into it, but the most common things that result in alter ego liability are failing to capitalize the LLC adequately, failing to carry adequate insurance, and using the LLCs assets for the personal benefit of the owner(s). You can google for more info.

 

[chris153624]

...Often, when a corporation or LLC seeks credit, the creditor will require a personal guarantee from one or all of the owners. This almost universal with single member LLCs. If your LLC fails to pay a contractual debt, and if you have personally guaranteed the debt, then you are personally liable for the debt (regardless of whether the LLC has filed bankruptcy...

I have no loans or credit so I should be good.

The business has a separate bank account and I try not to mingle funds between my private account. All business expenses and income go through the business account. The business has no insurance. I keep records of all sales and purchases.

Home value (~$30k) is below what the state considers a homestead exemption so in case of a "piercing of the corporate veil" I should be allowed to keep the house.

I will consider insurance.

 

[PayrollHRGuy]

The business has no insurance

Bad idea...

I will consider insurance.

Good idea...

 

[adjusterjack]

The business has no insurance.

The LLC doesn't shield you from your own acts of negligence. If what you do with cars and parts causes injury or damage to anybody you will be sued as an individual along with your LLC and the judgment will be against you as an individual along with your LLC.

Don't think that bankruptcy is the easy way out. Your house might be exempt but just the fact that you have one and may have other assets and income could put Chapter 7 out of your reach. A Chapter 13 bankruptcy could have you paying that judgment for up to 5 years.