Thank you for your question. I am happy to assist you.
You may have a problem if the person files a bankruptcy for his business. The trustee may try to avoid the transfers to your LLC under Section 547 or 548 of the Bankruptcy Code.
Let me explain.
A transfer of the debtor’s assets to a creditor that results in a creditor receiving more than the creditor would have in a Chapter 7 bankruptcy, is typically considered a “ 547 preference".
Bankruptcy Code §547 provides for the avoidance of preferential transfers within 90 days before the bankruptcy filing date for third parties. Transfers to insiders (including a relative) are subject to a longer avoidance reach back of one year.
A transfer of the debtor’s assets to a third party, with the "intent" to prevent creditors from reaching the assets to satisfy their claims, is called a “fraudulent conveyance”.
Bankruptcy Code §548 provides for the avoidance of fraudulent transfers within two years before the bankruptcy filing date. Transfers to self settled trusts and similar devices are subject to a 10 year avoidance reach back.
Accordingly, you may want to consider assisting the person to avoid a bankruptcy filing.
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THIS IS FOR INFORMATION ONLY. NO ATTORNEY-CLIENT RELATIONSHIP EXISTS. PLEASE CONSULT A LAWYER IN YOUR STATE FOR LEGAL ADVICE