Five Ways to Save Your Personal Assets From Angry Creditors
Consider an all-too-typical scenario: two or three years ago, you, the owner of a small business, took out a loan for your business because you anticipated future growth.
Now not only do you have to repay the principal plus the interest, but your creditors are threatening to sue the pants off of you, and you are not pulling in as much revenue as you used to.
Sound familiar? Unfortunately, this is a common situation for small business owners to find themselves in.
Even if their business is structured as a limited liability partnership or limited liability corporation, they may be more liable for damages than they think.
According to the U.
S.
Chamber of Commerce's Institute for Legal Reform, in 2005 tort liability costs reached an amazing $98 billion for small businesses, here defined as operations with less than $10 million in annual revenue.
It is wise to note here that the report also stated that $20 billion was paid out of pocket instead of through insurance.
Given the litigious nature of society today, this is not too surprising.
There other surprises in store for small business owners that may spring upon you at any time.
There are practical steps to take to protect you from all possible events.
Convention wisdom would dictate that these steps are only for the rich, but they help small businesses, too.
Please note that this is a broad look, and you should seek out a specialist for specific advice.
1) Inventory all of your tangible assets Sit down and create a complete and total list of all assets and debts currently on the books.
It is highly recommended to do this every six months or so.
Remember to think very generally: do you have savings for retirement or a vacation house? These can be very valuable to creditors and they are potential targets for litigation.
2) Look into possible exemptions and protective structures Some or all of your assets may be exempt from creditors due to federal or state law.
Typically these are your life insurance policy, your primary residence and any retirement savings you have.
These should be the only assets in your name.
For other assets, think about setting up corporate entities to protect them from rapid lawyers.
Domestic and offshore trusts are examples of protective entities.
3) Do not give out personal guarantees This means that you never pledge to be personally responsible for any debts whatsoever that your business incurs.
4) Read the fine print Always be wary of any contract that you sign.
Personal liability may not be accounted for even if your company is structured as a limited liability partnership or corporation.
5) Get insurance Insurance can save you from even the most determined creditors, if you find the right policy.
Now not only do you have to repay the principal plus the interest, but your creditors are threatening to sue the pants off of you, and you are not pulling in as much revenue as you used to.
Sound familiar? Unfortunately, this is a common situation for small business owners to find themselves in.
Even if their business is structured as a limited liability partnership or limited liability corporation, they may be more liable for damages than they think.
According to the U.
S.
Chamber of Commerce's Institute for Legal Reform, in 2005 tort liability costs reached an amazing $98 billion for small businesses, here defined as operations with less than $10 million in annual revenue.
It is wise to note here that the report also stated that $20 billion was paid out of pocket instead of through insurance.
Given the litigious nature of society today, this is not too surprising.
There other surprises in store for small business owners that may spring upon you at any time.
There are practical steps to take to protect you from all possible events.
Convention wisdom would dictate that these steps are only for the rich, but they help small businesses, too.
Please note that this is a broad look, and you should seek out a specialist for specific advice.
1) Inventory all of your tangible assets Sit down and create a complete and total list of all assets and debts currently on the books.
It is highly recommended to do this every six months or so.
Remember to think very generally: do you have savings for retirement or a vacation house? These can be very valuable to creditors and they are potential targets for litigation.
2) Look into possible exemptions and protective structures Some or all of your assets may be exempt from creditors due to federal or state law.
Typically these are your life insurance policy, your primary residence and any retirement savings you have.
These should be the only assets in your name.
For other assets, think about setting up corporate entities to protect them from rapid lawyers.
Domestic and offshore trusts are examples of protective entities.
3) Do not give out personal guarantees This means that you never pledge to be personally responsible for any debts whatsoever that your business incurs.
4) Read the fine print Always be wary of any contract that you sign.
Personal liability may not be accounted for even if your company is structured as a limited liability partnership or corporation.
5) Get insurance Insurance can save you from even the most determined creditors, if you find the right policy.
