Different judgments handed down by bankruptcy courts over many years have made the interpretation of LLC bankruptcy rules a difficult task. Here are a few insights into how some LLC bankruptcy rules work:
1.An LLC is regarded as a “single member” LLC when the business’s membership interests are owed by one individual or jointly by husband and wife.
2.An LLC with excessive debt and a viable product line files for Chapter 11 bankruptcy so that it can reorganize its business affairs. LLCs that see no future in continuing with the business mayt file for protection under Chapter 7. Chapter 11 helps reorganize the business while Chapter 7 liquidates it. Filing for protection under any Chapter also helps suspend lawsuits, judgments, collections, and foreclosures/repossessions, subject to certain exceptions.
3.Filing a petition under Chapter 11 does not stay any proceedings initiated against the debtor on account of criminal activity, certain domestic obligations (alimony, child support, etc.), and any case or liabilities involving or arising on account of suspension any of the debtor’s licenses given under state law.
4.Non-executory contracts are contracts which the bankruptcy trustee can fulfill in place of the debtor. Executory contracts are contracts that the bankruptcy trustee will not take on. An agreement can be termed as executor or non-executory depending on the clauses it contains.
5.Priority debts must be repaid first. Such priority debts are defined by § 507 of the Bankruptcy laws and include domestic support obligations, certain loans obtained under the Federal Reserve Act, employees benefits, and taxes. Next, it’s the turn of the secured creditors to be paid. Secured creditors are creditors who hold the debtor’s property as security for loans. The loans may be fully or partially secured by the assets. After the secured creditors come the unsecured creditors. Priority levels are assigned to creditors and each priority level must be paid in full before the next priority level is considered for repayment.
6.If a publicly listed company files for Chapter 11 bankruptcy, then its stock gets delisted from its primary stock exchange, so long the stock is listed with NASDAQ, American Sttock Exchange, or with the New York Stock Exchange. The letter “Q” at the end of the stock symbol indicates that the company has filed for bankruptcy. Such stocks can be traded on the OTC (Over The Counter) exchange, but their market prices naturally witness a sharp erosion.
These were a few insights into LLC bankruptcy rules. An LLC bankruptcy is a very complicated and time-consuming process and all LLCs must appoint an experienced and reputed lawyer to handle their bankruptcy cases.
Other Business Bankruptcy Articles:
Business Bankruptcy
Bankruptcy Of An LLC (Limited Liability Company)