Bankruptcy issue

[Denne]

I have a client (LLC) that owes me quite a sum of money. One of the members just filed for personal bankruptcy. For some reason I got a notice of the bankruptcy for what the LlC owes me. He LLC did not file bankruptcy. Is the correct the way it was filed? Can I go after the other member of the LLC for the total debt owed? Thanks for you always helpful advise!

[rfassett]

Yep and yep. If this is a Chapter 7 bankruptcy (and it will say on the notice you received) and he is ultimately discharged (relieved of the obligation to pay the debt), you are forever estopped from attempting to collect the debt from him personally. In other words, his person guarantee of the debt will go away. You can still attempt to collect the debt from the LLC and the other member with no problem.

[sschillercpa]

I thought that one of the main reasons to form an LLC (limited liability company), or corporation, was that the members or stockholders could not be held personally liabile for the debts of the LLC or corporation.

On what basis do you say that you can still attempt to collect a debt from the LLC "and other member"?

[rfassett]

On the basis that member #1 must have thought he was personally liable for some reason - and that would most likely be a personal guarantee. You are, of course, correct in theory. I made some assumptions based on the info submitted. Now, that said, the LLC is just now being tested in the courts and is found wanting in some districts. I would not counsel my clients that they have 100% protection. Call me a dinosaur if you will, but I have not trusted LLC's from the start. Give me a corp anyday.

[TAXBILLY]

These are legal questions that should be referred to an attorney.

taxbilly