LLCs are a new type of business and banks and vendors typically do not extend credit to them unless the loans are personally guaranteed by the business owners. So, like it or not, most, if not all, LLC Chapter 7 bankruptcy cases involve debt that is personally guaranteed by the business owners.
Such business owners must realize that an LLC may not get its debts discharged under LLC Chapter 7 bankruptcy. Chapter 7 involves selling all non-exempt assets and using the proceeds to pay off the creditors. After the money is distributed, the company ceases to exist. So, no LLC can expect a discharge when it seeks protection under Chapter 7 bankruptcy.
Some of the reasons why a LLC files for Chapter 7 bankruptcy are:
1.When the debt of the company is so high that it is impossible to pay back the debt, even after meeting revenue targets.
2.When the product line of the company is not generating enough revenues to pay for the operating expenses, and there’s no hope in sight. If a company cannot pay for its operating expenses, then there’s no way it can pay its’ debts.
3.Business owners considering bankruptcy should seek out reliable and experienced attorneys who specialize in representing businesses seeking protection under Chapter 7 LLC bankruptcy. Going to an attorney who’s handled Chapter 11 bankruptcy or is well-known for representing creditors is not good enough.
4.If a business owes a lot of money in priority debts like taxes, employees’ benefits, trust fund taxes, etc., then the LLC may opt for Chapter 7 Bankruptcy. This is because if they go in for reorganization, then the creditors will get all the money and if things go wrong again, the state and federal agencies will hold the owners personally responsible for the priority payments. If this happens then the owner’s personal assets will be sold. This means that after paying off creditors, the owners now have to sacrifice their personal assets to pay the priority dues. It’s better to seek protection under Chapter 7 LLC bankruptcy to ensure that the priority debts are covered first.
5.If a business has many creditors then it’s best to opt for Chapter 7 LLC bankruptcy. This is because the case trustee is responsible for selling the assets and distributing the money among the creditors. All the creditors will feel that the money is being apportioned fairly as the process is overseen by the bankruptcy court. And, so, they won’t move against the business owners after the bankruptcy process is over.
This was about Chapter 7 LLC bankruptcy and the circumstances that can lead up to it.
Other Business Bankruptcy Articles:
Business Bankruptcy
Bankruptcy Of An LLC (Limited Liability Company)