What is recourse debt in an LLC?

Recourse debt is one of the two primary types of debt. In the case of recourse debt, the borrower is personally liable for the loan repayment. If a borrower defaults on a recourse loan, the lender can collect what they’re owed toward the debt even after they’ve taken collateral from the debtor.

What is recourse on k1?

If you own an interest in a partnership, each year you receive a K-1 form on which partnership activity is reported to you (the partner) for your share of that year’s activity. Recourse liabilities are those that any partner bears the economic risk of loss with respect to the liability.

How are loans treated as recourse in a LLC?

Because of the limited liability characteristic of LLCs, members generally do not bear any economic risk of loss with respect to LLC liabilities. However, loans made to the LLC or guaranteed by a member (or a member affiliate) generally are treated as recourse for the debt allocation rules.

What is the definition of a non-recourse loan?

Nonrecourse debt or a nonrecourse loan (sometimes hyphenated as non-recourse) is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender can seize and sell the collateral,…

Is the general obligation of a LLC a nonrecourse debt?

In most cases, analyzing a general obligation of an LLC that is guaranteed by or borrowed from a member as if it were a partner nonrecourse debt may yield the most appropriate result, even though such a loan does not fall squarely within the definition of partner nonrecourse debt.

What is the collateral for a recourse loan?

In most cases, the collateral is the asset that was purchased by the loan. For example, in both recourse and non-recourse mortgages, the lender would be able to seize and sell the house to pay off the loan if the borrower defaults.