Shielding business accounts from levy by personal creditors

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

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Question Dear Your Business Credit,
I have a sole proprietor business and have always used my Social Security number. If I get an Employer Identification Number and open a new account, will it stop personal creditors from placing a levy on my business account? -- Nancie

Answer Dear Nancie,
It sounds like you are under a lot of financial stress right now, and I am sorry to hear that. Problems with creditors are always stressful, but don't let your emotions lead you to do something you will regret later. I hope you're not thinking about shielding personal assets by shifting them into a new business bank account. It may be tempting, but if you transfer any personal money there, it is likely to land you in hot water. My advice: Don't do it!

A levy gives a creditor the right to seize an asset, such as funds in your business bank account. You didn't tell me if the creditors have actually taken steps to go after your business assets. That is relevant to your situation.

Sole proprietors are personally liable for all business debts. Generally speaking, it is a good idea to set up a business entity such as a corporation or limited liability company (LLC) to establish some legal separation between your personal and business finances. It can help you protect your assets. Once business owners do that, they will typically get an Employer Identification Number -- generated by the Internal Revenue Service to identify a business entity -- and use the EIN to open a business bank account.

Doing this also helps you to stay more organized about your personal finances.You will have a better sense of how much you can afford to spend if you aren't treating business revenue as one and the same as your personal kitty.

Leslie Tayne, an attorney in Melville, New York, says that a sole proprietor who wants to shield business assets from personal creditors can do so by setting up a business bank account for a business entity with a separate tax ID from his or her personal one. "It would have to have a separate tax ID," she stresses. 

Technically, creditors could sue you to get control of shares of a corporation if you went this route, but generally they don't go after small firms in this way because the businesses are not valuable enough to justify the trouble, she says. You can move money from your personal bank account to a business account even if creditors have sued you, she adds. However, she warns that it is not legal to conceal assets from creditors in such a situation.

If a creditor has obtained a judgment against you, moving money from your personal account to a business account could raise red flags, according to La Crescenta, California, attorney Robert Brennan at "In California, it would likely violate the Uniform Fraudulent Conveyance Act, which has been adopted by several states," he says. Creditors could find out you did this by subpoenaing bank records.

You will be better off avoiding this scenario by dealing with the situation in a forthright way and trying to find a way to pay off your debts. When creditors try to place a levy on your bank account, they must typically get a judgment against you in court to do so. At that point, you will have an opportunity to pay the debt or work out payment arrangements.

My suggestion is to get legal advice, too. Laws regarding personal and business debts vary from state to state. You will need help navigating them. If you are broke right now, try to find an attorney who will work with you on a pro bono basis. Call the bar association in your state for a referral. Good luck!

See related: How to build business credit separate from personal credit, Getting a business card without a Social Security number, Can you build business credit without a Social Security number?

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Updated: 03-26-2019