If I have defaulted student loans and want to start my own business., can money be garnished out of my business account?

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If I have defaulted student loans and want to start my own business., can money be garnished out of my business account?

I have wage garnishments against me. I want to start an S-Corp and open a bank account for the company and deposit money in there for the business. Will it be better for me to start an LLC or combine an LLC and S-Corp? I want to make sure any investments made for the company are not taken away. It will be in online business of selling homemade bath and body products.

Asked on November 24, 2014 under Business Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

There is no way to render yourself judgment proof if you start up a one-person LLC or S-corp with student loan defaults hanging over you: if the creditor or their collection dept./agent becomes aware of the business, they can likely (not definitely, but likely) "pierce the corporate veil" of a solely owned LLC or corporation by showing that the business is simply your alter ego (and not legitimately a separate entity) and/or show that any assets/money you put into the corporation was a fraudulent transfer made to defraud your creditors (transactions made to defraud creditors can be reversed or undone by the courts), and in either event, reach the funds.

This is not to say that establishing an LLC or S-corp won't offer some protection--the creditor may not become aware of it; or since reaching its funds is not a given or definite, may either choose not to try or might try and fail--but there is no way to provide absolute protection. You may need to do something like what you suggest: have a series of business, one owing another, to provide maximum insulation. Speak with a business attorney (one who does business formation) to structure things for the most possible protection.


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