week ... I was scared. I almost lost my LLC company." This
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Since Limited Liability Corporations (LLC) are a relatively new
type of business entity, LLC owners have some difficulty finding
out how courts will treat their bankruptcy LLC cases. Will the judge
treat them like an LLC, as a corporation or as a partnership? What
will happen during a bankruptcy LLC when the company has only one
owner? Currently, there is no code or law that directly addresses
bankruptcy LLC proceedings.
Partnership versus Corporation in Bankruptcy LLC
There are two different ways a bankruptcy court may handle the case
of Limited Liability Corporation with a single owner. First, the
judge may treat the bankruptcy LLC like a partnership. In this case
the court would dissolve the LLC and deal out all remaining assets
to creditors. Anything remaining goes to the owner. On the other
hand, the judge may decide the LLC is a corporation. Here the judge
would not dissolve the owner from the bankruptcy LLC. The former
owner could give over ownership interest to another party. If the
former owner decided not to do this, the bankruptcy judge would treat
the former owner like a corporate shareholder. The owner would not
have to give up stockholdings, just as a shareholder wouldn’t
in a large corporation bankruptcy case.
Legalities of a Bankruptcy LLC
Keep in mind the most difficult part of filing for bankruptcy LLC
is there are no specific rules for dealing with a Limited Liability
Corporation. Because of this, there may be several different factors
that a bankruptcy court considers when deciding what to do. The most
important factor is the number of member owners in the corporation.
That said bankruptcy laws do not define the number of individual
owners a corporation must have, especially for an LLC.
Because the lines are so blurry here, it is hard to tell how the
bankruptcy court will decide who needs to consent to the bankruptcy
filing. All members of the LLC may have to consent to the bankruptcy
LLC filing. On the contrary if the judge treats it like a corporation,
then only one member must consent. Most often in LLC proceedings,
the bankruptcy judge looks to state laws and codes to determine how
to deal with the bankruptcy. Therefore these proceedings may vary
from state to state.
Filing the Bankruptcy LLC
Before filing for bankruptcy as a corporation or partnership, schedule
an appointment with a bankruptcy lawyer to discuss these issues.
As an alternative, you can also talk to state or county bankruptcy
officials who can clarify how they will determine the proper procedures
for bankruptcy LLC.
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