Pay LLC Debt Or Personal Debt First?

Which debt snowball should Kevin work on first; his LLC debt or his personal debt?

QUESTION: Kevin had an LLC business that failed in 2006 and has $160,000 in debt on it under the name of the LLC. He has $37,000 in personal debt with that. How does the LLC debt that he’s not paying on right now roll into the debt snowball?

ANSWER: My guess is you have personal guarantee on all of it. The stuff that has your personal guarantee on it is personal debt. Regardless of the source, it’s personal debt. The law doesn’t treat it differently because it came through a limited liability company. I’d put all of that in the debt snowball and put it in the proper order and pay it off.

As far as other debts that don’t have your personal guarantee on them, I’d put those after my personal debt snowball. In a worst-case scenario, those guys don’t get paid. You need to take care of that in that order. When those are gone, work the ones you don’t have personal liability on.

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