Wisconsin L.L.C. Bankruptcy Laws
Wisconsin LLC bankruptcy laws provide the legal framework for limited liability corporations to get out from under heavy debt. U.S. bankruptcy codes govern the process for commercial bankruptcy. Wisconsin LLC owners may choose Chapter 7 or Chapter 11 depending on their predicament. The bankruptcy codes do not directly mention LLC's in the statutes. The courts must must examine the circumstances of each case to determine how to proceed with the matter.
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Low Personal Risk
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Business owners with LLC structures have limited liability for the obligations of the entity. Wisconsin limited liability corporations function like conventional corporations because owners only risk their personal investments in the business. However, if individuals sign a personal guarantee for credit cards or other debts, the person may have legal liability for the debts. In addition, owners must not commingle personal finances and assets with the LLC funds; this type of activity "pierces the corporate veil" that protect the owners' personal assets.
Filing the Petition
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LLC business owners must go to the U.S. Bankruptcy Court for their area in either Kenosha, Manitowoc, Milwaukee, Oshkosh, Racine or Green Bay and file a "Petition for Voluntary Bankruptcy." Documents pertaining to the LLC, such as assets and liabilities, real property ownership, secured and unsecured creditors, the amounts owed, and other financial documents must accompany the petition.
The court immediately issues a decree referred to as an "automatic stay." This court order prohibits creditors from attempting or following through on any collection activities, such as evictions, repossessions, or letters and phone calls. The court appoints a trustee from the Department of Justice to manage the case.
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Chapter 7
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This type of bankruptcy, which many call "liquidation," occurs when the owners want to close the doors of the business. Once the owners file the necessary paperwork, the trustee takes over the case and gathers the business assets. The trustee sells off the business property and uses the proceeds to pay off creditors according to the order outlined in the bankruptcy laws. Instead of dismissing any remaining debts as in personal Chapter 7 cases, the court simply closes the case. This does not prevent creditors from attempting to collect any remaining debt.
Chapter 11
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"Reorganization," or Chapter 11, permits Wisconsin LLC business owners to operate under the protection of the bankruptcy court as the owners work to put the entity back on track financially. Once the owners file the bankruptcy petition and other financial documents, the court appoints a trustee who provides oversight and direction on crucial decisions related to the LLC's operation. At this point, the business owners must operate the business for the benefit of the creditors.
The court may form a committee of the LLC's top creditors to supervise operations and help the owners put together a reorganization plan. The plan may include renegotiating leases and other contracts, creating a new schedule of payment for debts, and other cost-cutting measures. The creditors and the court must approve the final reorganization plan.
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References
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