will bankruptcy affect LLC ownership?

[amitt]

I would like to know if my wife and I file for bankruptcy, will that affect our business of 3 years that is an LLC?

[StartingOver08]

In a word - Yes.

[amitt]

okay, maybe i should have been more specific... if it would affect, and exactly how?

[StartingOver08]

Are you contemplating filing personal BK? I just filed personal CH 7 with a S-corp (that is what your LLC is, an S corp). Because the S corp was owned 100% by me it is considered an asset to my personal BK estate. Which means that 100% of all accounts receiveable belong to the trustee as of the date of filing. (Please check all this info with your attorney, this is what my attorney has said and I am in Fl).

Once the personal BK is discharged, all the DEBT that was corp and personally guaranteed by me is discharged against me personally but NOT discharged against the corp. So the credit card companies just go out and get a judgement against the corp for the defaulted debt payments. (Because, as I understand it, I can not pay the corp debt while in bankruptcy because that is preferencial payments and not allowed by the trustee). The minute your company earnings are deposited in the corp account the cc companies can sieze the earnings on the basis of the corp judgment. This is the classic catch 22.

So now in order to not have that happen, I have to open a new corp.

I assume that would be the same in your case, but I do not have all the facts. That is why I say, ask your attorney those specific questions. When I retained the attorney I did not know that all receivables (100% without deduction for business expenses) belong to the trustee. You can't even pay your rent for the business out of the income.

[trastaff]

What if you are 50% partners in an LLC? How does your personal filing affect the LLC?

[HHM]

Your LLC is an asset of your "personal BK". As with any asset if it has non-exempt equity, it can be taken by the trustee.

Thus, if your business has assets or something of value, and you file a BK, the trustee can get at those assets.

[StartingOver08]

I am not sure. But following the logic that if you owned 100% of the LLC and consequently 100% of the receivables belong to the trustee as of the filing date; then, if you actually own only 50% of the LLC, maybe only 50% of the receivables belong to the trustee.

I really don't know because some of the trustee rules seem arbitrary to me.
This is the Statement of Financial Affairs that you must fill out and it addresses business ownership in a BK hopefully this will help you somewhat or give you a direction with your attorney:

http://www.wiwb.uscourts.gov/fillable_forms/StatementFinAffairs_B7.pdf

I found a site that explains the differences between an LLC and an S-Corp. Apparently when one of the partners in an LLC files BK the LLC 'dies' - see this link for a better explanation:

http://www.residual-rewards.com/llcvsscorp.html

I don't know if I have helped you or confused you!

[nodollarsnomo]

I've got a question for you StartingOver

If my husband and I decide to file a personal bk and he is 100% owner of an S-corp and at the time of filing we have maybe $40,000.00 in the business acct., but we have debts of over $100,000.00 will the trustee take all the money.
You said to the other poster that their business would have to close if we did this also could we use the money we had in the bank to start the new business.
Also, if this was all the money that we have to live on would the trustee still take it?

I hope you see this post I appreciate your input.

[StartingOver08]

nodollarsnomo, the trustee treats your husbands ownership of the S-Corp as an asset. The money in the S-Corp bank account is an asset of your husbands' and goes to the trustee. You may have some exemptions that you can apply toward the funds - you need to check with your attorney or even pull up your states bk exemptions.

I used the funds in my S-corp account to pay the attorney filing fee and to pay the IRS, both allowable actions in the BK.

I was not allowed to use the funds for anything else and my attorney suggested having almost zero in the account as of the filing date ($100).

The only reason I have to close the S-corp is because I have corp debt that was personally guaranteed by me. The personal guarantee was discharged (or will be!) when I receive the Ch 7 discharge (hopefully Jan 2009). But the S-Corp debt is NOT discharged. So the creditors can get a judgement and sieze any new income that the S Corp earns. So I have to have a new S-Corp or do business as a sole prop. Ask your attorney - but I have a feeling that all 100% debtor owned S-Corps are considered assets of the debtor

[HHM]

I've got a question for you StartingOver

If my husband and I decide to file a personal bk and he is 100% owner of an S-corp and at the time of filing we have maybe $40,000.00 in the business acct., but we have debts of over $100,000.00 will the trustee take all the money.
You said to the other poster that their business would have to close if we did this also could we use the money we had in the bank to start the new business.
Also, if this was all the money that we have to live on would the trustee still take it?

I hope you see this post I appreciate your input.

Yes, the trustee will take all the money.

[nodollarsnomo]

ok- heres another what-if

what-if I were to file seperately a personal ch 7 with about $45,000.00 in debt that is in my name only. I do not work and have no assets, but I can sign on the business checking acct. Will they come after my husband for this money? I live in TX.