If Your Bank Account Is an LLC Account, Can It Be Garnished?

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A limited liability company is a legally separate entity created under state statutes. Therefore, it is wholly distinct from its owners. An LLC shields its owners from personal liability related to the operations of the business. If an LLC fails to pay the IRS or its creditors, they may garnish its bank account. If the LLC’s owner fails to pay personal debts, neither the IRS nor creditors can garnish its bank account, as long as the LLC maintains its separate status.

LLC's Employment Identification Number

When you create an LLC, you must file an EIN -- employee identification number -- request with the IRS to obtain an EIN for the LLC. Once you have a separate EIN, all business conducted by the LLC must use the EIN. Any bank loans, supplier agreements or W9 form requests must include the LLC's EIN. In addition, the LLC's owners, referred to as members, must sign all business agreements using their titles or positions at the company.

Business Reasons for Garnishment

If the LLC neglects to file or pay its taxes, fails to pay its creditors or has a judgment entered against it in a lawsuit, the LLC's assets may be subject to attachment. In these situations, an LLC's bank account could be garnished. Typically garnishment of business accounts only occur if the LLC fails to respond to payment requests, negotiate payment arrangements or provide alternative payment sources.

LLC Liability Shield

An LLC's owners must operate the LLC as a separate entity to ensure it remains legally distinct. If owners fail to do so, a judge or the IRS could garnish the LLC's bank account. If an LLC fails to obtain a separate EIN and operates the business under an owner's social security number, a creditor could garnish the LLC's bank account to pay personal debts.

Liability Shield Nullification

The signing of agreements by members who use their name without title or LLC affiliation may damage the LLC's personal liability shield. If a personal creditor discovers this, the creditor could petition a judge to nullify the LLC's liability shield and allow the creditor to attach to the LLC's assets and garnish its bank account to satisfy the creditor.

Bank Account Protection

LLCs are subject to the same pursuit and attachment of assets by its creditors as people are. However, an LLC that has bank accounts in its name with a separate EIN cannot be garnished for an individual's personal debts. In order for a bank to comply with a garnishment demand by the IRS or other creditor, the account holder's tax identification number and name must match the demand.

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