Month: March 2013

Assuming Personal Responsibility

A huge advantage to incorporating or forming an LLC is that it protects your personal assets from business debts. But creating the corporation or LLC isn’t enough—you have to make sure you don’t waive that protection.

One way to waive that protection is to take actions that suggest you’re willing to be personally responsible for the corporation’s debts. Below are four of the most common ways business owners can, intentionally or otherwise, assume responsibility for their business’ debts:

  • Signing a personal guaranty. By signing, you’re taking responsibility for paying the loan if the business can’t. Many banks require one, especially for new businesses. As you develop a good history with the banks, you might be able to get them to waive this requirement. Make sure to keep track of any personal guaranty.
  • Offering personal property as collateral. A creditor can go after collateral, even if it’s your personal property. Just like with personal guaranties, a bank is more likely to require this for new businesses. Again, make sure to keep track of what you offer as collateral.
  • Using personal credit cards for business expenses. You are always responsible for paying your personal credit card balances. The card company doesn’t care if you used the card for “business purposes.”
  • Signing a contract personally. Always make sure you indicate you’re signing as a representative of the company (ex. President, CEO, etc.). If you just put your name on the dotted line, people will assume you’re signing as an individual and plan to be held individually responsible for the contract.

Corporations and LLCs offer great protection for business owners, but that protection isn’t absolute. Being aware of how you can become personally liable for your company’s debts can help you minimize your risk and realize all the advantages incorporating has to offer.

Putting Wage Garnishments in Perspective

Garnishing a debtor’s wages is called an “earnings garnishment” in Wisconsin. It’s one way a creditor has to collect what they’re owed on a judgment. But like many ways to collect, there are limits to what and how you can garnish.

The biggest limitation is on what you can garnish: at best, only 20% of an employee’s earnings can be garnished. If garnishment would bring the earnings below the poverty level, you’ll get even less. And if an employee is already earning below the poverty level, you can’t garnish at all.

Another limitation is time: Wisconsin limits garnishing to 13 week periods. Usually, only one creditor can garnish at a time. When the 13 weeks are up, you have to re-file (and pay the appropriate fees).

A final issue with earnings garnishments is that they involve a debtor’s employer (called the “garnishee”), which can complicate things. For example, you must send certain forms to both the debtor and the garnishee. Both of them can object to the garnishment, meaning you may end up back in court to decide who’s right.

It might seem like, with all of those limits, an earnings garnishment is never a good idea. Not true! The key to a successful earnings garnishment is to keep your expectations reasonable. Working with someone who understands the collections process, the likely costs you’ll incur and the likely amount you’ll receive from the garnishment.

Also, consider alternatives ways to collect: a garnishment may be your best option, especially if you’re having difficulty finding other property that the debtor owns. And if the debtor makes enough money, you may be able to get the judgment paid relatively quickly.

The collections process can be daunting. Understanding the pros and cons of your options can help you make the best decision on approaching it.