Should My LLC or Small Corp File Bankruptcy?

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.

What Is Confirmation in Bankruptcy?

Confirmation: The court order which makes the terms of the plan for repayment of debts in a Chapter 11, 12 or 13 binding. The terms of the confirmed plan replace the prepetition rights of the debtor and creditor.

What Does Confirmed Mean?

Confirmed: A plan of reorganization in Chapter 11, 12 or 13 approved by the court and binding on the parties is said to be confirmed.

What Is Chapter 12 Bankruptcy?

Chapter 12 bankruptcy: A simplified reorganization plan for family farmers whose debts fall within certain limits.

Chapter 12 Bankruptcy Is Like Chapter 13 On Steroids

What Is Chapter 11 Bankruptcy?

Chapter 11 Bankruptcy: A reorganization proceeding in which the debtor may continue in business or in possession of its property as a fiduciary. A confirmed Chapter 11 plan provides for the manner in which the claims of creditors will be paid in whole or in part by the debtor.