Should my LCC or small corporation file bankruptcy? Usually not. The general rule of thumb is that single owner corporations or limited liability companies should not file bankruptcy.
Occasionally, there is a benefit to filing bankruptcy for a small corporation, such as recovering a preference to pay priority trust fund taxes the owner owes personally. The down side to corporate bankruptcy filing is the bankruptcy trustee asking questions, making demands and suing the owner on various theories of mismanagement or insider transactions–the owner losts control of the corporation.
An LLC or corporation does not get a discharge of debts in bankruptcy. It can stop business and liquidate in bankruptcy, but that is better done under state corporation dissolution laws. Generally, a small business owner has incurred personal debt for the business or has guaranteed corporate debt and may need to file a personal bankruptcy. The contingent liability for the corporate debts can be listed in the personal case to stop collection against the owner.
An LLC or corporation is not eligible to file a chapter 13 debt adjustment bankruptcy. Corporations can reorganize in bankruptcy under chapter 11, which is very expensive and has many requirements small businesses are not equipped to comply with.
See a bankruptcy attorney with experience representing small business owners to determine if your single-owner LLC or corporation should file bankruptcy? A business dissolution coupled with a personal bankruptcy for you may be a better solution for you.
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