Legal Question in Bankruptcy in North Carolina

It is normally a simple matter to take the LLC through a Chapter 7 bankruptcy. The bankruptcy can be useful to liquidate remaining assets and serve as a mechanism to resolve any conflict between members and the LLC and its creditors, vendors and customers. The bigger question has to do with cross collateralization security held by a creditor of the LLC with property of its members. In addition, personal guarantees can create disparity and issues. Of course, if a company is liquidated in a Chapter 7, it is rare that the assets are sold for anything near market value. An alternative is Chapter 11. That is the LLC may elect to under go an orderly liquidation, with the current officers in control. The plan submitted in the Chapter 11 would set out a procedure and formula for marketing and sale of the assets of the LLC. The cash would them be distributed to those entitled to recovery in accordance with the priorities set out in the Bankruptcy Code and consistent with state law. Thus if there is equity in the assets, it could be useful to liquidate, either allowing the Chapter 7 Trustee to do so, or, undertake the task under the protection of Chapter 11. If there is no equity to reach, then the options would be to take no action, or file a Chapter 7 and wash your hands of it, being mindful of the secondary issues I mentioned in the first part of this answer. A quality bankruptcy lawyer will be able to recommend a strategy after being briefed on the details of the situation and parties.