Are Business Assets Treated Differently Than Personal Assets in a Levy?

Business and personal assets may both be subject to levies to satisfy creditor judgments. The treatment of business versus personal assets in a levy depends primarily on the debtor’s business structure and ownership documentation rather than an inherent legal distinction between the types of assets.

Levy Overview

A levy is a legal process that allows a judgment creditor to seize and sell property belonging to a judgment debtor. This can include money held in bank accounts, vehicles, equipment, inventory, accounts receivable, and other valuable property. State law exemptions may limit what can be seized, but these exemptions apply based on asset use and value rather than whether property is labeled “business” or “personal.”

How Business Structure Affects Levy Enforcement

The debtor’s business structure determines which assets are available to satisfy a judgment and what procedures creditors must follow.

Sole Proprietorships

There is no legal separation between the owner and a sole proprietorship. All business assets are legally the owner’s personal property. Judgment creditors can levy these assets using the same procedures as for personal bank accounts or vehicles. Sole proprietorships provide a straightforward path to asset recovery.

Partnerships

Creditors holding judgments against the partnership itself can levy on partnership assets. For judgments against an individual partner’s personal debts, creditors typically cannot directly seize partnership property. Instead, creditors must obtain a charging order against the partner’s interest in the partnership, entitling the creditor to receive the debtor-partner’s share of distributions without direct access to partnership assets. Charging orders provide less immediate recovery than direct asset seizure.

Corporations and Limited Liability Companies

Corporations and LLCs are legally distinct from their owners. When the judgment is against the business entity, creditors can levy business-owned assets. When the judgment is against an individual owner for personal debts, creditors generally cannot directly seize corporate or LLC assets because those assets belong to the entity. However, creditors can levy on the individual’s ownership interest in the entity. Levying ownership interests can be challenging because the market for minority business interests is limited, and transfer restrictions may complicate enforcement.

Piercing the Corporate Veil

In certain circumstances, creditors may pursue claims to “pierce the corporate veil” and reach business assets to satisfy personal judgments. This requires proving that the debtor disregarded corporate formalities by commingling personal and business funds, failing to maintain separate accounts, or using business assets for personal purposes. Successful veil-piercing claims allow creditors to treat business assets as available despite the formal corporate structure.

Protections from Levies Under the Law

New York’s Exempt Income Protection Act (EIPA) protects a certain amount of assets in personal bank accounts from seizure. However, this law does not similarly protect minimum assets in business accounts. 

New Jersey does not have a law similar to New York’s EIPA; however, the state has a $1,000 personal property exemption (including bank account balances) and protects certain income sources (Social Security, unemployment, etc.) from bank levies. However, debtors must file objections with the court to claim these protections. 

Practical Considerations for Creditors

Effective judgment enforcement requires acknowledging how business structure affects asset availability. Steps in the process can include:

• Investigate Ownership Structure: Determine whether the debtor operates as a sole proprietor, partnership, corporation, or LLC to identify available enforcement procedures.

• Identify Asset Ownership: Confirm which assets belong to the individual debtor versus a separate business entity through corporate documents and title records.

• Examine for Commingling: Look for evidence that the debtor mixed personal and business assets or failed to maintain corporate formalities, supporting veil-piercing claims.

• Evaluate Exemptions: Identify which assets may qualify for state law exemptions. Business entities cannot claim exemptions.

• Act Promptly: Debtors may transfer property or restructure operations to frustrate collection efforts. Quick action preserves recovery opportunities.

Protecting Creditor Interests

At Katz Melinger, we assist creditors in enforcing judgments against business and personal assets, including investigating debtor assets and business structures, pursuing appropriate levy procedures, filing veil-piercing claims when evidence supports disregarding corporate structure, and obtaining charging orders against partnership and LLC interests.

If you hold a judgment and need assistance enforcing it against business or personal assets, consult our legal team. Call (212) 460-0047 or contact us online to schedule a consultation.

Katz Melinger PLLC

370 Lexington Ave # 1512, New York, NY 10017

(212) 460-0047

The information provided should not be taken as legal advice. For the most current and thorough details, it is advisable to seek assistance from a legal professional by contacting a qualified attorney.