I am a bankruptcy attorney and I would be happy to assist you. Yes you can file Chapter 7 bankruptcy. If you or the LLC file Chapter 7, the debtor would be able to discharge unsecured and secured debts. If you discharge the secured debts you are not able to keep them. You would have to typically pledge to keep those debts which are secured in order to keep the property. For example) if you wish to keep the land, and if it is exempt then you have to continue to pay the mortgage. The down fall of the Chapter 7 for an LLC will be if the company has business assets which are non-exempt. Then the creditors can take those and the business will typically close because it will not be able to function without certain equipment, etc.
A better option for the LLC may be to file Chapter 11. Chapter 11 is a reorganization of the LLC's debts. It provides relief for the company to reorganize and prioritize its operations, assets and liabilities. The LLC can continue its operations and keep its essential assets. Chapter 11 usually requires your attorney to be working with a good accountant who is overseeing the money. A trustee will be assigned to also determine which liabilities need to be discharged or realigned for payment. Chapter 11 is also a better option because if at anytime it does not look like the business will survive, it can convert to a Chapter 7. Therefore, it usually better to start off with a Chapter 11, because it will give your small business
a better opportunity to succeed.
In both chapters, if the LLC files for bankruptcy relief it will immediately halt the law suit. This is called the automatic stay. The creditors will have to address their claims in bankruptcy court, which is advantageous to the LLC since the federal bankruptcy trustee will now be involved and can prevent creditors from conducting inappropriate collection efforts.
Lastly, if you have been named in the lawsuit personally, you should consider filing Chapter 7 bankruptcy. Chapter 7 bankruptcy will allow you to discharge any personal guaranty you made on behalf of the LLC. It was also halt the law suit.
You should consult with a bankruptcy in your area as soon as possible. You have 20 days after receipt of a summons to file your Answer. Therefore, try to find a bankruptcy attorney in your area that specializes in Chapter 11. They will be able to file Chapter 7 too, but not all Chapter 7 attorneys understand 11. Chapter 11 is much more complicated. Also, most attorneys provide free consultations, so make sure they do not charge you for your initial consultation. Make sure to bring with you to the meeting a copy of the Complaint & Summons you received, along with any Profit/Loss Logs, Mortgage Statements, or Bills the LLC owes.
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