Bankruptcy For Limited Liability Companies – LLC Bankruptcy

Business Bankruptcy 7, 11 & 13

LLCs are a popular business form of organization because of strong protections from creditor liability. Although Kentucky LLCs can file bankruptcy, it is much more common that members will file bankruptcy. When an LLC interest has net assets, trustees have only moderate success in reaching the assets of the LLC and distributing funds to creditors. It is very difficult for creditors of a member to sell off assets of a limited liability company.

Bankruptcy For Limited Liability Companies, or, LLC Bankruptcy

An LLC is like a partnership in the relationship between the members and owners of the business. In most cases, a member’s interest in an LLC can not voluntarily or involuntarily transfer without the permission of each business member. This prevents an outsider from becoming an LLC member who participates in the management of the business unless everyone agrees. Additionally, outside creditors cannot force their way in and become a member.

Limited Liability Companies Bankruptcy Specifics

Judgment creditors of an LLC member can only ask the court for a charging order. That charging order then transfers all the member’s distributions from the LLC operations to the creditor. Then, if the other members decide not to distribute profits from the company, the creditor has no recovery.

However, the Florida Supreme Court authorizes the FTC as a judgment creditor, to force the sale of assets when it is a single-member LLC. Since a bankruptcy trustee has the rights of a judgment creditor and other power granted by the bankruptcy code, a single-member LLC offers very little protection to a bankrupt member.

However, when the LLC has no real assets or liquidity this is not a problem for the LLC or its members. More often than not there is no real equity in the assets of most LLC corporations that have ongoing operations. But the crafty debtor that only seeks to shield his assets by transferring them to a single-member LLC with no business purpose other than shielding the assets, won’t be able to protect those assets.

Resources for Bankruptcy

Louisville Kentucky Bankruptcy Forms

Bankruptcy Manual

Other Related Information

Tax and Bankruptcy Lawyer for Business Trust and Income Tax

Chapter 11 Business Bankruptcy Information

Louisville Jefferson County Kentucky Commissioner

Student Loan Forgiveness Programs

If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.

Share This Article, Choose Your Platform!

Our Services

Start Your Intake or Contact Us

If you want to start your intake, we need your Name, email address, and phone number so it can be set up and you can complete your intake at work or home. If you have questions send us a message with your email address so we can respond. We practice in Louisville, Lexington, and New Albany, Indiana.

  • This field is for validation purposes and should be left unchanged.

Download Our Bankruptcy Manual
Recent Posts