By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP
Isn’t it irritating as a creditor when you discover in your contract with a customer/debtor that you don’t have a personal guarantee in the file and your only recourse on a delinquent account is against an entity, such as an LLC? Often for creditors, the lack of a personal guarantee on the promise to pay by the debtor LLC means an account may very well be uncollectable. This can be a common frustration when working with small entities and as a creditor, you are really hoping the LLC has unencumbered assets.
In general, collecting against an LLC is similar to collecting against an individual. However, LLC’s do not have the availability of exemption protections that individuals have. Take the time to research the county assessor’s records to see if the LLC has an ownership interest in any real property located in the county. If it does, record your judgment with the county assessor so as to have a lien on the real property. Now whether you can collect from the real property may be determined by the value of or equity in the real property. The purchase of a lot book or a litigation guaranty from a title company is helpful in this regard and it will show encumbrances on the property.
Another collection option against an LLC is to research vehicle titles through the department of motor vehicles. These title searches can be helpful in identifying vehicles titled to the LLC and whether there is a lien on the vehicle. If a lien is in place, perhaps it is a bank or other financial institution. This information can be helpful as a potential avenue to do a garnishment as it is not unusual for the LLC to have account(s) at the financial institution who is a lienholder on their vehicle(s).
Collecting against the personal property and assets of the LLC is also an option. Step one in this option is to do a UCC filing search to determine if there is an encumbrance on the inventory, equipment, product, fixtures, vehicles, accounts receivable, commercial instruments, letters of credit, and/or all of the business’s assets. If it appears there are assets available, then obtain the necessary order and writ and coordinate with the Sheriff and potentially a moving company to locate, seize and store the items for a Sheriff’s sale.
Another aspect of collecting against an LLC is when you have a judgment against a debtor and that debtor has an ownership interest in an LLC. Idaho law provides for creditors to have the ability to obtain a charging order from the court. This charging order would be against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. Essentially, the charging order requires the LLC to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor.
If you are a creditor seeking assistance in collecting a debt that a debtor is refusing to pay, give Stephen Muhonen at Racine Olson, PLLP, a call at 208-232-6101. You can also email Steve at steve@racineolson.com.