If I’m looking to start a small business, what can happen if I owe for student loans?

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If I’m looking to start a small business, what can happen if I owe for student loans?

A few years ago I had lost my job, and I got pretty far behind in my student loans. They are now in collections. If I start a DBA account, will they place a levy on my business bank account? And would it make a difference if it were under a Tax ID as opposed to my social security number? Or do I need to establish an LLC instead. I do want to pay these loans as I don’t want the debt hanging over my head, but I want to be able to pay them a little at as a time once I am established. I don’t want to start a business in the hole.

Asked on August 8, 2015 under Business Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

If your business is a sole proprietorship (a dba), then you and the business are legally the same person and creditors can collect from (e.g. levy, execute on, or garnish) "business" assets, which are really your assets. If the business is a corporation or LLC, it is legally a separate person and its assets would be safe from your personal debta, unless creditors can show that in practice, there is no separation or distinction betwen you and your business (e.g. you comingle your monies) and your alleged business assets are really personal assets. This is called "piercing the corporate veil" and is very had--but not impossible--to do.

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

If your business is a sole proprietorship (a dba), then you and the business are legally the same person and creditors can collect from (e.g. levy, execute on, or garnish) "business" assets, which are really your assets. If the business is a corporation or LLC, it is legally a separate person and its assets would be safe from your personal debta, unless creditors can show that in practice, there is no separation or distinction betwen you and your business (e.g. you comingle your monies) and your alleged business assets are really personal assets. This is called "piercing the corporate veil" and is very had--but not impossible--to do.


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