LLC Bankruptcy Laws
If your LLC is in trouble and you are considering filing for bankruptcy, keep in mind that doing so might not exempt you from repaying your debt. Typically, when you start an LLC, your personal assets are legally protected from business creditors. In that case, filing your LLC for bankruptcy won't affect your personal assets. However, if at some point you surrendered your limited liability protection, then filing your LLC for bankruptcy might not protect your personal assets.
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Surrendering Limited Liability Protection
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Some small businesses might find it necessary to surrender their liability protection to secure a loan.
Collecting Debt
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A creditor must prove in a court of law that you are negligent on your business debt before they can take your personal property.
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Types of Bankruptcy
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If you surrendered your liability protection, you might need to file bankruptcy for yourself and your business separately to protect your personal assets. Chapter 7 bankruptcy means that those assets not legally exempt are sold, with the profit going to the creditors and any eligible debt wiped out. With Chapter 13 bankruptcy, you opt to repay your debt, partially or in full, over time.
Types of Debt
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Depending on the type of debt your LLC has, filing for bankruptcy might not alleviate the debt. For example, any unpaid payroll taxes must be paid, regardless of filing. On the other hand, if your LLC is holding a hefty bank debt, filing for Chapter 13 bankruptcy might be the only way to protect your personal assets.
Considerations
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If your LLC includes other members, bankruptcy laws can get complicated, and dissolution of your LLC might be inevitable. Contact a bankruptcy lawyer in your state for specific information on your state laws about LLCs.
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