I started out as a single member LLC and business loans were made to the LLC with me as personal guarantor. My LLC status was revoked 4 years ago for owning back state taxes which are now paid in full. I have not renewed my LLC status. I am hoping to file a Chap 13 bankruptcy and include my business in order to protect my assets and continue running business restructured. Will the court acknowledge me as a sole proprietor and allow for a Chap 13 since I have not been operating as an LLC since 2008 with none of the protections of an LLC and all the risk?
State/Country relating to question: Rhode Island
I had a consult with a local bankruptcy attorney and, but he is questioning whether there is precedent for a revoked single member LLC to be considered a sole proprietor in Chap 13 court. If you can point me to some legal references, it would be very helpful.
Hi, thanks for your question. You should hire a lawyer for specific legal advice. No attorney client relationship is created here.
Businesses do not file chapter 13. Businesses can file chapter 7 liquidation, or chapter 11 reorganization
If your intent is to stay in business, then you would look to chapter 11
Otherwise, if you file a personal bankruptcy, you can include debts you guaranteed as well.
The business would still be liable for any unpaid portion though if you just file individual bankruptcy.
Sole proprietor vs LLC really doesn't come into play if you are looking to stay in business.
ch13 will not help you with that, only chapter 11.
do you have any questions?
I am a tiny business and Chap 11 is absolutely out of the question. I need to know specifically if there is any precedent in Chap 13 case law where a single member LLC's status was revoked. I have incurred all the risks of a sole proprietor, I file a schedule C, I no longer am a recognized LLC.
All debt is debt from my business. For which I am personal guarantor.
I've already had a consult about the basics with a local attorney, and he cannot answer this question.
11 USC 109(e) Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.
since a business is not an individual, it cannot file chapter 13.
Only chapter 7 or chapter 11 is available.
Bu a sole proprietor CAN filer a Chapter 13.
if you file as an individual for chapter 13, you can include business debts that you have guaranteed.
for his/her business.
AS THEY ARE ONE -IN-THE-SAME ENTITY.
yes, but the creditors will close the accounts, and won't let them continue operation using those accounts and vendors
So, if the goal is to stay in business and reorganize the debt, a chapter 13 won't work
The accounts will be closed, and the debts would be paid thru the chapter 13.
Main creditors are mortgage on the biz property and 2 EDC loans. We pay COD for all inventory/supplies (we're a tiny breakfast lunch diner)
Any portion not paid thru the bankruptcy case (many are only paid 10% and up) would remain the business liability if the business was seeking to stay open.
So no real vendors would be affected
so, you can file a personal chapter 13
All secured debt
You can include all debts you have guaranteed.
For mortgage arrears, you would have to pay them 100% thru the case.
But creditors will still seek it from the business and force liquidation?
showing the court you can afford the mortgage, and the bankruptcy payment in addition to all of your normal monthly expenses.
Yes - but isn't a business mortgage eligible for lien stripping?
not during the case if you are paying them back, they cannot pursue cosigners without approval from the court.
It's not my primary mortgage or my residence
only residence is allowd.
can't strip on non-residence.
How about cramdown - real estate is underwater
business real estate and residence both
So business mortgage would not be affected by Chap 13 and would remain the same?
cramdowns are only for non-real estate property that is secured (cars, furniture etc)
meaning you have to pay the business mortgage if you are looking to stay in business, yes
I thought it would be considered an asset in a Chap 13
Yes - understood, but is there no modification of mortgage to current property value?
for biz property?
The ownership interest of the business is an asset
Which translates into what in BK court?
You would pay all mortgage arrears thru the case, there is no cramdown or stripping of non-residential property in ch13
i don't understand your question
I would recommend ch11 based on what you are telling me, not chapter 13.
You may have more options with chapter 11 on reorganizing the debt
Thanks. I don't have $50,000 for a chapter 11! I'm a mom & pop biz.
and restructuring the secured loans. You'll have to talk to a local chapter 11 attorney to get specific information
I hear ya
much of the fee may be able to be rolled into the case though
do you have any other bankruptcy questions?
Appreciate your advice. Do you know of any case law where someone who started out as an LLC and lost LLC status was able to file 13 and include business assets? If there is a precedent it would be helpful to know. Otherwise I am looking at receivership for the business and pers Cahp 13 for me. I work another full time job in addition to owning my diner.
So am a "wage earner" and believe I can support a plan
All assets are listed in a chapter 13.
Ok. Thanks again.
if you have signed personally for the asset purchase as well as for the business, it is properly listed.
Your interest in the business assets are also an asset that would be listed on schedules A & B too, so that would properly be listed in any bankruptcy filing. let me know if you have any other questions. Thanks and good luck.
Better Business Bur 15yrs bankruptcy experience. Chicago Bar
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).