Question about money in our LLC's bank account?

[JustDamn]

Thanks FeelBad, and hopefully the "hijack" is generating some good feedback for the op (as well as the rest of us).

J

[onwards]

I just re-read some posts that I missed (yours included onwards).

From reading the responses it seems that if you have business debt with a personal guarantee, that the personal bk will still leave your LLC exposed to the personally guaranteed business debt if your LLC remains intact, as the creditors will continue to come after the LLC.

I think I get it....not sure. If this is the case, then it sounds like you might be in luck with an LLC, if you don't have any business debt for that LLC that you're vacating in a personal bk.

I'm still confused as the information that's out there that states that an LLC goes "poof" if a member (maybe just a single member LLC), claims personal bk.

Sounds about right; creditors can and will sue the LLC if you default on the debt you personally guarantee, but note that it might be hard for them to collect if the LLC has no assets, exactly BECAUSE the guarantor has defaulted.

Honestly, if this is case then nothing stops you from dissolving the LLC and starting a new one - even with the same name. They can't chase after that!

As for the goes "poof" thing, I don't know. My lawyer stated upfront that it was a possibility but not a definite result, and in fact, thought we had a good chance of it not happening. He was right. The way he explained it is that the law gives the trustee the POWER to dissolve it, but it does not REQUIRE that it be dissolved. This is probably specific to CA, but I really have no idea.

[JustDamn]

Thanks...I'll also let everyone know what my attorney emails me with, when I get a response.

J

[JustDamn]

Just to muddy the water a bit more , one thing I asked my attorney about in the email was changing the corp. entity from an LLC to a sub S before I file.

Since it's a new entity, would that preclude:
1) Having the business entity disappear?
2) Creditors coming after the new Inc.?

The main reason I don't want the entity to "disappear", is due to state licensing. If I just convert from an LLC to an Inc., the same license #, etc, applies.

If I let the LLC "die" and restart it (or a new corp, even with the same name)...I've got to go through lic. requirements just as if "new", and due to soon to be horrible credit ratings, that won't pass muster.

J

[Feelbad]

Two owners - my wife and I.

Note that my wife was NOT included in the bankruptcy. That could have made the trustee's job had he decided to liquidate the LLC just a bit more complex, because my lawyer was ready to object on her behalf. But at the end, the following factors played:

1) the LLC was not a single-owned (single-member) entity (which, according to my lawyer, made it less obvious to close down)
2) the LLC did not have tangible assets
3) the LLC did not have more assets (in terms of cashflow) than liabilities

I am worried about mine being single owned and really the potential $8k balance.

[onwards]

The main reason I don't want the entity to "disappear", is due to state licensing. If I just convert from an LLC to an Inc., the same license #, etc, applies.

If I let the LLC "die" and restart it (or a new corp, even with the same name)...I've got to go through lic. requirements just as if "new", and due to soon to be horrible credit ratings, that won't pass muster.

And that plays in your favor!

My lawyer had another thing to use in further justifying surviving the LLC: the health insurance plan would have to be reissued to the new firm, which would have meant my losing some very hard-fought and hard-won coverages for non-standard medications that are quite expensive and I would obviously not be able to pay for without those coverages.

My lawyer basically prepared to argue that dissolving the LLC would cause me undue harm because of the medical issue. Yours could make a similar case about the licensing, arguing that it would cause you undue harm in your ability to make a living. In the end he didn't need to but it was there all the same.

[JustDamn]

The big (HUGE ) factor for me would be, that even if the LLC is "allowed" to live...would it then be liable (and vulnerable) to the personally guaranteed debt (about $120k)...that's the big deal, because that would then not work...yeah, I want to "have my cake and eat it too"

If converting to a sub S would neutralize that problem that would be great...but that just sounds too easy.

J

[Feelbad]

And that plays in your favor!

My lawyer had another thing to use in further justifying surviving the LLC: the health insurance plan would have to be reissued to the new firm, which would have meant my losing some very hard-fought and hard-won coverages for non-standard medications that are quite expensive and I would obviously not be able to pay for without those coverages.

My lawyer basically prepared to argue that dissolving the LLC would cause me undue harm because of the medical issue. Yours could make a similar case about the licensing, arguing that it would cause you undue harm in your ability to make a living. In the end he didn't need to but it was there all the same.

I just spoke with the paralegal on my case. She said the $8k would be small enough and income sporadic enough to argue that it is needed for operating expenses and that dissolving the LLC would eliminate my ability to make a living. I think I still sounded skeptical so she said she would have my attorney call me tonight.

JustDamn - I think it would be difficult to simply move the business to another form and let the debt remain in the LLC. If you moved assets from old to new at any less than fair market value it could lead to trouble.

[JustDamn]

Thanks, but no assets to speak of really...maybe $2-3K in value of office stuff and tools...no receivables or anything...haven't done any work in the LLC in over a year...economy and more importantly 3 separate surgeries this year...nothing really major, but each one required months of healing time (and deduct. $$) to be able to do the kind of work that I do (I handle the carpentry aspect of the business "hands on")...

So a very bad/expensive 12-18 months, will have 2 years in a row of net losses...and with what I do, the next 12-24 months are going to be pretty rough as well I'm guessing.

J

[Feelbad]

Thanks, but no assets to speak of really...maybe $2-3K in value of office stuff and tools...no receivables or anything...haven't done any work in the LLC in over a year...economy and more importantly 3 separate surgeries this year...nothing really major, but each one required months of healing time (and deduct. $$) to be able to do the kind of work that I do (I handle the carpentry aspect of the business "hands on")...

So a very bad/expensive 12-18 months, will have 2 years in a row of net losses...and with what I do, the next 12-24 months are going to be pretty rough as well I'm guessing.

J

That makes more sense. If your attorney can help you get it squared away the removal of all of the debt would be a better option. If your going to go to these lengths, why go halfway?

I'd still like to hear any opinions on this single owner LLC situation.

Questions:
1. Will the trustee take the $8k in the LLC? Even if there are future business expenses to be paid from the $8k to provide the services required by the agreement?
2. Will the trustee take the $2k in assets? Or are they tools of the trade? If the LLC is the asset can the "tools of the trade" within the LLC be claimed as my asset to exempt?
3. Will I be able to keep the LLC open and running? I can from an operational and cash flow standpoint, but not if the trustee takes the cash or notifies a client.
4. If we file next Tuesday, I sign the service agreement on Wednesday and receive the check from the client in the mail on Thursday and deposit it would this simply be treated as a transaction after the file date and not available to the trustee?

The business is not worth anything to anybody but me. No one would agree to purchase the existing agreements.

I would appreciate any advice

[AllMyFault]

AllMyFault - I felt like maybe I hijacked your thread yesterday so I posted my issue on this in the Business forum this morning. This one seems to be getting the attention though. I hope you don't mind.

I don't mind at all....I've learned a bunch due to your questions.

[Feelbad]

My attorney and accountant seem to think that if the contract has not been executed and I have not received the payment it would not be an asset if these two things took place after the filing.

Any thoughts?

[onwards]

My attorney and accountant seem to think that if the contract has not been executed and I have not received the payment it would not be an asset if these two things took place after the filing.

Any thoughts?

I concur. In fact, I can bring up another example from my case. On the day after of the filing I was scheduled to fly out to meet with a potential client I had been negotiating with, to try and see if we can nail down the final details of a possible contract. The meeting went well enough, and after I came back we hammered the rest of the details that week, I sent a proposal, and another week later I had a contract. I asked the lawyer about all this in advance, because this was a big client and if they signed the contract it would, over time, stabilize my finances. He asked me this: "do you KNOW you will get this contract?". I said "of course not. I'd love to, I'm doing everything I can, but it's a huge firm and there are no guarantees". And he said "then you're good. Go over there and get the work and don't worry about anything else, just rebuild your life"

[MSbklawyer]

I just re-read some posts that I missed (yours included onwards).

From reading the responses it seems that if you have business debt with a personal guarantee, that the personal bk will still leave your LLC exposed to the personally guaranteed business debt if your LLC remains intact, as the creditors will continue to come after the LLC.

I think I get it....not sure. If this is the case, then it sounds like you might be in luck with an LLC, if you don't have any business debt for that LLC that you're vacating in a personal bk.

I'm still confused as the information that's out there that states that an LLC goes "poof" if a member (maybe just a single member LLC), claims personal bk.

J

Yes, an LLC or a corporation is like an artificial person created by the law. It can do any legal act that a real person can do except vote. (If you look closely at the bankruptcy code, sometimes it uses the word "person". This includes both natural and artificial "persons". Other times it uses the word "individual". This only includes a natural person).

So an LLC can contract for debt solely in its name. Usually, however, if the LLC is a Mom and Pop operation, the creditor wants the personal guarantee of Mom and Pop should the LLC not pay the debt.

But there's another twist in the law. Chapter 13 also protects co-debtors. So if Mom and Pop file for 13 bankruptcy and proposes payment through the plan, the the co-debtor LLC is also protected.

Does that answer your PM question JustDamn?

[JustDamn]

Thanks, MSBK. I'm still a little confused. So under the "mom and pop" scenario, if a person claiming bk is the sole member of an LLC (not my situation), does the LLC automatically become a "non-entity"?

And how about a 2 person (partnership) LLC, if one member (me), claims bk (and I'm the personal guarantor on the debt for the LLC)...can that (my) LLC survive post bk...and is the LLC itself then responsible for the debt? Also, do the laws vary by state (I'm in GA)?

Thanks for your input.

J