Episode Transcript
[00:00:00] One of the things I like to talk to clients about is inside creditors versus outside creditors and why they're important to know the difference between the two when we're talking about asset protection.
[00:00:16] First of all, let's talk about inside creditors. Inside creditors are typically attached to specific assets.
[00:00:24] So think of your mortgage company. They are an inside creditor because they have a mortgage lien on that asset.
[00:00:34] Think about a tenant. A tenant is an inside creditor because they have a lease with you to occupy that real estate. So they have attached to that property that asset that you have. Another type of an inside creditor may be a lien holder for a contractor who isn't paid and they put a mechanics lien against the property, a construction lien, they become an inside creditor. Now inside creditors, one thing about them is they are typically going after the property itself or the asset itself.
[00:01:09] Your, your bank may have a lien, so to speak, against your bank account. So they are an inside creditor. Let's say you sign a loan agreement, a bank business loan agreement with your bank. They would have a lien typically on your bank accounts called a right of set off against those the money in those accounts that they're holding in on deposit for you. They have a lien on that to pay their loan that they have made to your business. So they are an inside creditor as well. Other inside creditors may be your partners inside an LLC or they may have a lien against your membership interest in that llc. So those are inside creditors. Outside creditors are typically people or creditors who are tied to a person and they're a lot more broad. So an example of an outside creditor is you have a car wreck and the damages that you cause to the other person exceed your the limits of your policy.
[00:02:12] Or maybe you are accused of discrimination or another employment but violation and it's you who, who supposedly did it, that is an outside creditor. They are outside of your assets. So outside creditors can typically get a judgment against you. And then they are going to go after every asset that they can possibly go after. So we're always worried about outside creditors especially and then of course we're also worried about inside creditors, because inside creditors, especially, let's say it's a mortgage holder, can inside creditors can become outside creditors. So let's say that you have a mortgage on your property, you default, that lender forecloses, they take the property back and the property is not worth what was owed on the rest of the mortgage. So now they have a deficiency judgment against you. That deficiency Judgment against you as the owner of that property or the signer of that note or the personal guarantor of that loan is an outside creditor lien. It now attaches to everything else you have. So it has gone from being an inside creditor to being an outside creditor where they can come after everything else that you have. So what do we do and what are we thinking about as, as lawyers, when someone comes to us and they're trying to put together an asset protection plan and their estate plan and everything else like we typically do for them? First of all, we ask them questions to find out if they have any of those inside creditors. So we're going to want to know, do you have a mortgage on this property? Do you have a lien on this stock account, this, this investment account that you have? Maybe you have a, a, an account management account that is secured by your stocks, your equities and bonds and mutual funds that you hold. Maybe you have signed certain contracts and agreements and things like that for a specific asset. That is the security for that agreement that you've made. Those are all inside creditors. So we, we just want to know about those because those are potential liabilities. Again, they are potential outside creditors in the future. So we want to know about them now. The outside creditors, we pretty well know who those are going to be. Nine times out of 10, it's going to be, maybe it is a car wreck. Maybe it is. Maybe you have developed a patent, maybe you're a physician who has developed a new medical product.
[00:04:42] And that medical product later becomes, you know, a big issue. It's got a product defect. Now that's. Those are all outside creditors, all those people who have had that medical product use on them.
[00:04:54] We're always going to keep those things in mind as well. So what we're going to do is we're going to try to contain the risk as much as possible of your inside creditors. We want to contain that risk as much as possible just to the asset that that inside creditor is on. We want it as much as possible, as much as we can possibly do that if they end up suing on a lawsuit related to the asset, where they are the inside creditor, we want them to stay an inside creditor. And that asset is all that there is at stake. We don't want them able to then blow out and come after everything else you have as an outside creditor. Now, for outside creditors, what we're thinking of on them is we don't know where they're going to come from. We don't know what vector they're going to take coming at you because it come from anywhere. So what we have to do there is just try to make you as anonymous as possible. Keep your name out of public records, keep your name out of everywhere that anyone can search, as much as we possibly can to see your name. Because we don't want a potential plaintiff who is searching the Internet trying to find your assets, trying to find what you have when they're trying to determine whether they're going to sue you. This outside creditor, they're out there and they're going, well, is it even worthwhile to sue this person? We want them to search and we hope if everything has been done properly, that they don't find your name anywhere. And so it looks like you don't really own anything at all, not even your homestead. In a perfect world, they won't even see that. So if we can do that, we can, we can hope we can keep those outside creditors as well from coming against all of your other assets that you may have out there. Now, another way we protect against those outside creditors is by having your assets in other entities, in trusts in other protected places.
[00:06:46] If that outside creditor does come and they do happen to get a judgment against you, a general judgment against you.
[00:06:53] Now, their ability to then go out after those other assets, we're going to try to complicate that as much as possible. We're going to have those in multi member LLCs, we're going to have them in land trusts where there are layers of LLCs below that and then trusts underneath that to make those multi member.
[00:07:14] We're going to have all kinds of other things in place to try to keep those outside creditors that if they do come after any of your other assets, we hope that we have done everything that we can possibly do to keep all those other assets out of your name, or if they are in your name, they're held in your name in a way that they still can't touch it. For instance, maybe the judgment is only against one spouse, but the property is owned by both spouses as a married couple, that would keep that creditor, that outside creditor, from being able to take that asset away. So that is why if you ever come to us, or if you're ever talking to me about asset protection, I'm going to always bring up outside creditors and inside creditors, and we're going to talk about those and we're going to try our best to work with you, to work with your assets to keep the outside creditors away from the assets and to contain the inside credit creditors to the assets that they are creditors on. So if you ever have a question about that, just let us know.
[00:08:17] Like and subscribe. Keep up with topics like this if asset protection is of interest to you, or estate planning is of interest to you, if you're a business owner, if you're a professional, if you're a real estate investor. We work with you guys a lot and we are constantly seeing these scenarios with inside and outside creditors, especially with business owners and especially heavily with real estate investors. We see this all the time. Getting creative and thinking about the different vectors and ways that these creditors can come after your assets or after you is very important and something we try to keep in mind. So if this interests you, like and subscribe. If you have a comment, please leave a comment below. We love to hear your comments. If you have any other questions that you ever have come up, please put it in the comments below and we'll answer them in other videos later.
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