will home foreclosure apply lein on business?

[stella00]

What is the name of your state? AZ

Home loan is under my name but title under husband and wife and most likely we will lose our home. We also own a business (LLC), under both of our names, can our business be held responsible for our personal debt? The business is not profittable.

Thanks in advance for any advice that you can provide.

[danno6925]

Are you a company or a corp? Big difference in the answer.

[stella00]

Thanks for replying. According to the IRS we are treated as a corporation, the company has not filed yet since it is only 5 months old.

[tranquility]

Of more import, have you ever refinanced the loan?

The loan you use when you purchase property for the first time is generally considered a non-recourse loan. This means the bank can only go after the property itself in case of default. When you refinance, the loan turns into a recourse loan and the bank can go after all your assets.

Arguendo, recourse loan. AZ is a community property state and the bank can generally go after all the assets of the community. My understanding is that the LLC is wholely owned by the community. However, AZs LLC statute generally follows the Revised Uniform Limited Partnership Act (RULPA). I think they even went a little further in protecting the entity, but main effect of this is that a creditor cannot force you to sell off the LLC in order to get their money. Instead, they can get a "charging order".

How a charging order would affect you depends on many things and I don't know the law well enough to create an outline of the different effects. There is also a problem in that *all* the owners of the LLC are people who the debt collection is against. Case law is not entirely clear on the charging order when used against a Single Member LLC and a case could be made this is the same thing.

The bottom line is that to answer your question, no, the business cannot be held responsible for your personal debt. But, all your rights to income from the business can be.

[stella00]

tranquilty-
Thanks for the information.

[Rhubarb297]

Originally Posted by danno6925

Are you a company or a corp? Big difference in the answer.

An LLC is a limited liability company. It is not a corporation.

[danno6925]

Rhubarb: No. In the Commonwealth of PA, you can start either a LLC - limited liability corp or a LLC, limited liability company. AZ Law (based on Tranquility's post) is similar to PA law in this regard toward corporate liability.

Based on the secondary post by the OP, they are likely treated by the IRS as an S-type corporation. Tax implications, and rights to corp. profits are different with each structure.

[tranquility]

Not only are enabling statutes different on what the entity is called, but also Black's law dictionary lists both under LLC.

Besides, what's the point? Corporations are often defined by their characteristics, things like limited liability, continuation after the death of the principal and the like. What difference are you trying to point out between a "corporation" and an "LLC"?