What to due about a debt owed to another state?

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What to due about a debt owed to another state?

We were a small construction business with my husband as sole proprietor. We needed to carry worker’s comp in another state through that state’s insurance fund. However, we didn’t realize that the rate they were charging us and our wages were higher than we thought. We ended up owing them $16,000 for 2 years of coverage. They have turned us over to a collection agency and they do not want to allow us to make payments, saying they will take us to court if we do not pay in full immediately. We have since changed the business over to an LLC with my husband as single member and all of our personal assets are joint.How protected are we and what are our options?

Asked on January 17, 2014 under Bankruptcy Law, Pennsylvania

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 7 years ago | Contributor

You are not protected by the change to an LLC, since the debt incurred was incurred while a sole proprietorship. (The LLC structure will protect you from many debts going forward, but has no bearing on debts that pre-date its formation.) That means that your husband is personally liable for the unpaid assessments. You may be be sued by another state or its collection agency, so the fact that the debt is to another state does not protect you. You can defend against the claim, if you feel you have a good defense; you could try to settle the claim for either less than the face value or by offering to pay it out over time, though it's up to the other party (the state and its collection agency) to decide what they will accept); and, of course, you could elect to wait to see if you are sued before doing anything, since you don't necessarily have to do or pay anything if legal action is not taken.


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