Legal Question in Bankruptcy in California

Personal bankruptcy with LLC and business debt

I need to file a Chapter 7 bankruptcy. My situation is complicated as I am a single member of an LLC, which my operating agreement states the LLC will dissolve upon a bankruptcy. I have personal debt as well as personal guarantees on behalf of the LLC. I cannot dissolve the LLC as it will paralyze my future and cause my one remaining client to terminate our relationship. I would like to ammend my agreement, add other members, to control the LLC during this time (that a trustee might seek control of my interest in the company) and make provisions to not disolve upon bankrupty with a management transfer to another manager and prohibit trustee/outside control. I've read some information relative to this very situation--but am not sure how that will work and what the particulars are, timing and outcome expectations. Do I need to file a bankruptcy for my LLC as well, to cover all the debt incurred both in business and personally? Or can I simply claim the personal debt I've incurred in my personal bankrupty? The collections process has been very ugly. They are now proceeding to judgements. Does bankruptcy cure usual judgements/liens--if otherwise dischargeable? There's so many factors to consider. I need help. Thank you.


Asked on 7/16/05, 12:28 pm

3 Answers from Attorneys

Chris Johnson Christopher B. Johnson, Attorney at Law

Re: Personal bankruptcy with LLC and business debt

Sounds like you'll need a bankrputcy attorney to review what you have before advising you--some answers require further information. If you've made personal guarantees, you'd need a personal bankruptcy to discharge them. You may also want to consider negotiating the debts, as this may be a better option to avoid possible bankruptcy trustee control of your business and there'd be no court notices sent to your clients. Whatever you do, consult with an attorney soon, as some judgments may be difficult to avoid in bankruptcy court if you wait.

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Answered on 7/18/05, 11:44 am
Carl Starrett Law Offices of Carl H. Starrett II

Re: Personal bankruptcy with LLC and business debt

If you only have one remaining client, I don't see how filing for bankruptcy or terminating the LLC is going to paralyze your future. Nonethless, you can amend the operating agreement of a single-member LLC at anytime. Personally, I rarely ever advise clients to do business as an LLC because corporations are usually more flexible in reducing your tax liabilty.

If you file for Chapter 7, the trustee is entitled to control all of your nonexempt assets. Your ability to exempt your interest in the LLC depends on a number of factors that include the amount of your debt, the value of your LLC and the likelihood that a buyer could be found to buy your LLC so that debts could be paid.

Depending on your debt load and income, you might need to file a Chapter 13 repayment plan instead if you need to preserve ownership of the LLC. The level of detail need to answer your question really requires a consultation with a qualified bankruptcy attorney.

I do not know any bankruptcy attorneys in your area, but you I have an article on my website that provides some tips on selecting an attorney:

http://www.chs-law.com/2005/07/how-can-i-find-good-lawyer.html

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Answered on 7/16/05, 1:34 pm
Mark Markus Law Office of Mark J. Markus

Re: Personal bankruptcy with LLC and business debt

Filing a bankruptcy for your LLC is not going to deal with any personal liability that you have, so unless you do want the LLC to stop doing business, you would only file a personal bankruptcy. Your interest in the LLC would be an asset in your personal case and, depending on what the value of your interest is, you may or may not be able to exempt it. It may be that a Ch. 13 would be a superior means to deal with your problem. If you'd like a consultation to better assess your situation, please visit my webpage at http://www.bklaw.com/consultation.html and then contact me to schedule an appointment.

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Answered on 7/16/05, 2:08 pm


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