Chap 7 and LLC

[Nitnotz]

Hello-
I am the 90% partner in an LL and my wife is the other 10%. The business is failing and we already planned on filing Chap 7 for our personal debt. How does this impact the business and vice versa? Would it be best to file on both? We have about 50K in debt with the business. Almost all of the debt is personally guaranteed.
Thanks for the help!
Nit

[StartingOver08]

You file CH 7 personally. You include the LLC name as one of the 'alias names' right on the petition.

Remember to include all the debt from the LLC too as it is personally guaranteed by you (typically). The LLC is considered an asset of your BK estate, even if it only contains liablities!

If you have receivables as of the filing date - those belong to the Trustee.

You probably want to close the LLC after the filing/discharge.

[Nitnotz]

Starting over-
Thanks for the reply!
You make it sound so easy, we dont have to file separately for the biz? Receivables...I have some , but they are not paying. I have two projects that have stalled out and nobody is paying anybody, even under contract. Will they go after them?
Thanks for the help!

[StartingOver08]

Yes, they will go after them! But its not your problem anymore.

I had to list each receivable and I notated with the attorney the odds of it actually closing. We waited to file so that everything closed before my filing but one... and that one was based on certain 'affordable housing' program criteria that changed prior to closing. So when the contract fell through, I supplied the cancelation and was declared a no asset CH 7. But believe me, the Trustee was interested in the details at the 341.

The business filings are very expensive. My attorney handled my S-corp the way I described to you and it has worked. Of course, all the income earned after the filing has gone into my personal name and the corp is closed now.

You can open another S-corp after your discharge if you prefer.

[Nitnotz]

Starting Over-
These are phase billed projects.The work has not been done and basically they are not paying to move on to the next phase. There is a contract on the whole amount of the project, broken up by phase. Can they go after them if the work is not complete?
Thanks for the help!

[StartingOver08]

It is hard to estimate what will be done, not knowing the specific type of business.

Your contract must have some sort of performance based criteria for payment. In that case, there is a place right in the petition for executory contracts.

That can be difficult. I'm not an attorney, but found something that may help formulate your questions to your attorney regarding your contracts, see this link:

Once a bankruptcy is filed, the Trustee (a Chapter 11 debtor-in-possession acts in the same capacity as a trustee) (the "Trustee") may cure any default and preserve the remaining benefits of the debtor's unexpired executory contracts. Alternatively, the Trustee may unilaterally terminate an executory contract and minimize the financial impact of the default. An executory contract may be sold and assigned to a third party, even though the contract has a provision which otherwise prohibits assignment. The non-debtor party to such a contract (the "Client") may find itself in the often risky position of having to continue doing business with a bankruptcy estate or a third party that the Client might not otherwise choose to do business with.

The Client will want protection for any future business it does under the executory contract. Conversely, the debtor's rights under the contract, such as the remaining term of a favorable lease, may have significant value to the bankruptcy estate. The Trustee may wish to sell those rights for the benefit of the creditors. A license agreement or an insurance policy may be absolutely necessary to the debtor's ability to reorganize in chapters 11 or 13. Fortunately, the Code contains a special set of procedures and remedies to protect both the bankruptcy estate and the non-debtor parties to an executory contract.

http://www.calbar.ca.gov/calbar/2cbj/99jul/mclestdy.htm

It references CH 11 (because if the business is sizable, then an 11 is probably warranted), but CH 11 is not the only place for executory contracts.

I also found an extensive defination of what is considered an 'executory contract' and your situation may fit into one of the following, as it appears that its not as easy as it would seem to determine whether or not a contract is executory!

http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title4/civ00059.htm

[Nitnotz]

Starting over-
We are a low voltage electrical contractor. We install lv wiring in homes and then install alarms, lighting control av systems, etc.
Thanks for all of the help, I really appreciate it.