It's not a pleasant option. It can be costly in terms of money and emotions. But bankruptcy for an LLC may be your only alternative to digging out from crushing debts while securing some footing for a new start. Filing an LLC bankruptcy is a viable option that will require careful consideration and valuable advice from a qualified attorney. In preparation for your first meeting with a lawyer, you should understand the following issues in regard to your LLC bankruptcy filing.
Accept the fact that not all debts may be discharged through your bankruptcy hearing. Liability for "trust fund" taxes, such as employee withholding taxes, will remain under your personal obligation to repay. Some states also define sales tax as liable, while others consider them an excise tax and may be discharged over time.
Understand the initial process steps for initiating an LLC bankruptcy. You should interview several attorneys before you select one, as they should specialize in bankruptcy and know the specific laws for your state. Most often, a bankruptcy judge will be reviewing the codes and former rulings to determine how to handle your LLC filing. An experienced attorney will help to anticipate what a judge will require.
A file will be petitioned with the appropriate bankruptcy court in your area with a schedule of your assets, debts, and statement of financial affairs. A filing fee will be paid and a trustee appointed to your case. Some states require that you consult with a credit counselor to determine if you can relieve the financial burden without proceeding through bankruptcy.
Work with the court-appointed trustee to provide all the information they require. The trustee is the representative for all the creditors. You may be required to attend a creditors meeting in which the trustee and creditors may ask you questions about your finances. The role of the trustee is to review any assets that may be liquidated, review claims for exemptions and provide recommendations to the court of what should and can be discharged.
Consider how you have handled your finances between the LLC and your personal life. Even though an LLC is a legal "person," your exposure will be dependent on how well you kept your business money separated from your personal money. If you incurred debts for personal gain under your LLC name, you may be held responsible for repayment. If you gave a personal guarantee for any LLC loans from a financial institution (and most all do require a personal guarantee in the fine print), you may be surprised to find these debts will also have to be repaid through your personal assets.
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