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Dimitry Esquire
Dimitry Esquire, Attorney
Category: Bankruptcy Law
Satisfied Customers: 41221
Experience:  Provide General Practice advice to my clients in my practice.
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In the state of Texas, can one partner of an LLC file

Customer Question

In the state of Texas, can one partner of an LLC file for personal bankruptcy without affecting his or her interest in the business. In other words, what is to stop the trustee from taking their interest and selling it to pay creditors?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Dimitry Esquire replied 1 year ago.
Thank you for your question. Please permit me to assist you with your concerns.
No, it is not possible to file for personal bankruptcy without it potentially affecting the LLC. An LLC interest is an asset, it inherently has value, and yes, a trustee can potentially sell it as a means to pay down for some or all of the debt. The trustee won't be stop from selling the interest, although most trustees offer this benefit first to other partners, akin to a 'right of first refusal'.
Sincerely,
Dimitry, Esq.
Customer: replied 1 year ago.
Is that specific to Texas? I have been told what you have said. I have also been told that Texas specifically has an exemption that allows that the only remedy is a "charging order" is the only legal procedure that personal creditors in Texas have. I have been told both which is why is is confusing.
Expert:  Dimitry Esquire replied 1 year ago.
Hello, this is an asset in all states and US territories. And while I have been looking for this 'remedy' online for you as a law, I just dot see that as a law. If it is exists, I do not see and did not find it.
Sincerely,
Dimitry, Esq.
Customer: replied 1 year ago.
How do they determine the "inherent value" as you put it in your first response? The LLC is a couple of years old and still has a lot of debt. The LLC operating agreement has no provision for a member filing bankruptcy as well. The member that wants to file also has 49% interest if that makes a difference.
Expert:  Dimitry Esquire replied 1 year ago.
Hi,
That depends on how the evaluation can be made. All LLCs have value, and an accountant can be hired to evaluate business income versus current debts to estimate the actual cost of the company. The percentage does not make any difference, but if any member files, be it 1% or 99%, it can affect the LLC.
Sincerely,
Dimitry, Esq.
Customer: replied 1 year ago.
Can you give me a little info on the "RULPA" charging order concept as it relates to Texas?
Expert:  Dimitry Esquire replied 1 year ago.
Hello, what specific information are you seeking?
Customer: replied 1 year ago.
Maybe what I am asking is about information regarding the Texas (BOC) and its change in 2007. It is my understanding that they now use the "Delaware approach" to charging orders. Is this true? If a creditor obtains a charging order against one of the members of an LLC, how does that affect them being able to get a "salary" from the business, specifically if the partnership agreement says profit is 50/50.
Expert:  Dimitry Esquire replied 1 year ago.
One point of clarification please--you first mentioned an LLC, now you are asking about partnerships. Two two entities are quite different. Which entity is in place currently?
Customer: replied 1 year ago.
It is an LLC with an operating agreement or regulations of the LLC. I said "partnership agreement" incorrectly.
Expert:  Dimitry Esquire replied 1 year ago.
Hi,
I appreciate the clarification. In that case RUPLA does not qualify, as that is designed for partnerships and not for closed corporations or LLC. There are other options available, but RUPLA is generally not on of them. Please see below:
http://www.americanbar.org/publications/the_business_lawyer/find/find_by_subject/buslaw_tbl_mci_rulpa.html
Sincerely,
Dimitry, Esq.
Customer: replied 1 year ago.
Can you give info then on the change in 2007 in the BOC for Texas as it relates to charging orders. This was asked in the previous question. Can you please give your thoughts on this. Is a charging order the only remedy now in Texas. Since this is a multi-member LLC it is my understanding that they cannot "pierce the vail" like they can a single member llc. Is this correct? or is this misinformation?
Expert:  Dimitry Esquire replied 1 year ago.
That is not correct, ANY LLC can be pierced, multi-member or not, it is just harder to pierce a multi-member LLC as there is likely harder to show evidence of 'alter ego' and factors that would permit the piercing to occur.
As far as charging orders are concerned, that is NOT the only option in Texas--I have been reviewing state codes and do not see it as the sole remedy--please see this link for further information:
http://www.traderstatus.com/chargingorders.htm
As far as opining on the 2007 change, I am afraid that it will require additional research beyond the initial scope of your question, as it did not ask for such an analysis anywhere within that thread. If that is what you seek, please advise and I will forward an additional service request to you.
Sincerely,
Dimitry, Esq.
Customer: replied 1 year ago.
Thanks for the info that you have given, however, I believe that this analysis should be in the included in the original thread as a clarification of that would actually answer the question that was asked originally. If the Texas BOC was not changed in 2007 to make the only remedy a charging order then your answer is correct. If the BOC was changed then the answer you have given will be incorrect. The only way to know is to find out if this in fact the case.
Expert:  Dimitry Esquire replied 1 year ago.
Texas does not have this as the only remedy--I do not and did not find any laws supporting that this change occurred. I do not see the charging order as the sole remedy in Texas either within Texas code, or on other supporting websites as well as more tangible sources in this instance.
Please take care.
Sincerely,
Dimitry, Esq.