Creditors

Current creditors:

If the debt has been contracted or the liability has been incurred. Such as using of a credit card, credit line, or department store account.

Future (sometimes known as later or subsequent) creditors:

Future potential creditors are an unknown group of people you have yet to meet or give cause to complain.

Of the two categories of creditors, only future and current creditors appear to be covered by the fraudulent transfer law. These are the creditors to which the debtor harbored a fraudulent intent had the time of the transfer (Eurovest, Ltd. v. Segall, 528 S. 2d 482 (1988)).

Note: Creditors will always try make this fraudulent intent in order to position themselves under fraudulent transfer law. However, they bear the bur­ den of proof on this issue.

Generally, fraudulent transfer law does not protect future potential creditors (Oberst  v. Oberst, 91 B.R. 97 (1988), Klein v. Klein, 122 NYS 2d 546 (1952), Wantulok v. Wantulok, 214 P. 2d 477 (1950)). However, if, after making a transfer, a debtor  embarks on a course of fraudulent conduct or  proceeds with a reckless disregard for others' rights, the future potential creditor can become a future creditor protected by fraudulent transfer provisions.

There is a distinction between transfers motivated by a desire to place property outside the reach of potential future creditors, such as a trust for a child and transfers with an intent to defraud  creditors  entitled  to  fraudulent  transfer  protection. The  former  is proper; the latter is improper (Oberst v. Oberst, 91 B.R. 97 (1988)).

Such distinctions make it important to determine what type of creditors a debt­ or may have before proceeding with an asset protection plan. It also creates a timing constraint. The best asset protection planning is done before any creditors exist.

Avoiding or Evading Creditors:

Avoiding, delaying or evading a current  or later creditor is a fraud and:

(1) As a "fraudulent transfer;"

(2) can be reversed by ajudge; and

(3) Can result in criminal penalties to the debtor and those who assist the debtor

(1) Bottom up creditor

A bottom up creditor is a creditor that has a claim and/or gets a judgment against the LLC arising from acts or omissions of the company rather than from act or omissions of a member, manager, or employee. The general rule that the members of the LLC are not liable for the company's debts and obligations.

(2) Top down creditor

A top down creditor is potentially more serious for an LLC member because the creditor is not coming from the bottom up through the LLC to get to assets of a member. Instead, the top down creditor first sues and gets a judgment against the member's acts or omissions, rather than the acts or omissions of the LLC, its managers or employees. For example, a member of an LLC who runs a red light and kills or injures somebody is liable for the harm he or she caused. If the victim or the family of the victim sues the member and gets a judgment against the member for the damages caused by the member running the red light, the LLC does not provide any protection for the member against the creditor.

NOTE: An LLC or any other entity cannot protect you from harm that you cause. When you cause harm, you then have a top down creditor problem.