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Ask a Lawyer -- LLCs
LLC Question 138
Question:
I have a coffee business, it's failing, what protection does LLC give us in a bankruptcy or just closing our doors & with our personal assests. We are just not making enough money to pay our bills. My wife and myself is the only people working the shop.
Thank you
Response: Although I have appeared in bankruptcy court representing creditors over the years, I claim no special expertise in bankruptcy law. Best to address specific questions about bankruptcy to a specialist. On a more general level, if your business is failing, a logical course of action would be to close the business, notify the creditors, sell the LLC assets at auction or in another commercially reasonable manner, and then distribute the proceeds of the asset sales to the creditors. Whether a creditor of the LLC has a claim against you personally would turn on whether or not you guaranteed the debt. Leases are typically guaranteed by a small business owner as are credit cards. First, I'd sit down with a bankruptcy attorney (bring along all LLC contracts) to work through your options. The bankruptcy lawyer may see a reason why it is best to do the liquidation within the context of bankruptcy rather than doing it on your own.
Submitted: 10/15/2007; James, texas
Response: 10/15/2007; JJR
User Comments
From: Joe
State:MO
Posted: 10/17/2007
Subject: Another caveat
Comment: >>Whether a creditor of the LLC has a claim against you personally would turn on whether or not you guaranteed the debt.<<
Another caveat. Distributions of capital from the LLC to members at a time when the LLC is insolvent is another potential basis for personal liability of LLC members.
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