Liens, Judgments & Bankruptcy
If you’ve had any business experience in life, sometimes you end up in difficult situations. Time, money, and energy. No explanations required. It happens. Tax liens, lawsuits, bankruptcy, or civil judgments can leave you feeling boxed in. How do you get in front of it all?
You want to get restarted but feel trapped by the system. Any money you might make gets instantly sucked away. Your SSN is radioactive to lenders and credit bureaus. How do you handle this temporary mountain?
Popular solutions include business organizations such as corporations and LLCs. They can work but the risk is their details are listed in public databases than anyone with an internet connection can look up. So you hold off. But there is a solution we’ll discuss momentarily. But for now let’s follow the story a bit more…
What happens is any new earnings are ‘subject to’ these outstanding civil judgments or tax liens. These obligations are called “withholding orders.” They are listed in the “general index” of public records at your local County Recorder’s office.
If such an order were to exist, then any type of asset such as bank account or real estate in that county would be at risk because title would connect.
$300,000 gross profit on a business transaction
– $250,000 withholding order
= $50,000 what you get
However, if you were to use a private business trust, you would get the entire $300,000 of proceeds. This is because your trust is separate from you personally and it has it’s own EIN.
Sometimes an escrow intermediary will look to see if you own any Corporations or LLCs. This can result in surprises. By having your property owned by a private trust, any personal judgments will not attach to the transaction.
There is no existing system that notifies an outstanding creditor you have a private business organization. There is no system for them to identify any trust over which you have control.
Even in the remote case a creditor discovers the trust, it’s not your ‘personal’ funds. For them to prove otherwise takes time, effort, and research. Most creditors are too busy with a desk of easier accounts to collect.
A trust can give you an advantage in negotiations on new deals. You can stay behind the curtain.
Even if you have settled outstanding liens make certain with the Recorder’s office that they are cancelled from your file. No future surprises to screw up a deal.
If you do have any tax liens, civil judgments, or bankruptcy, it’s only a temporary pause toward better days. But the key to getting back on your feet is new transactions. Keep them off the radar screen with a business trust. Then get your other situations handled.