Can a limited liability company file for bankruptcy? Yes, but not chapter 13.

18 Dec Can a limited liability company file for bankruptcy? Yes, but not chapter 13.

Many small businesses today are organized as limited liability companies. The concept is relatively new. It came from Europe, particularly Germany where a limited liability company is called GmbH. In fact, when the Bankruptcy Code was enacted, more than 30 years ago, the term “limited liability company” did not appear in the Bankruptcy Code. It still doesn’t. Instead, the law included many types of businesses under the definition of “corporation”. Under bankruptcy law:

a corporation includes:

  • association having a power or privilege that a private corporation, but not an individual or a partnership, possesses
  • partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association
  • joint-stock company
  • unincorporated company or association; or business trust
  • but does not include a limited partnership

The term “limited liability company” isn’t mentioned.

The short answer is that limited liability companies can and do file bankruptcy cases. When they do, they are treated as corporations. It doesn’t matter whether the limited liability company is disregarded for tax purposes as is often the case for single member limited liability companies. It doesn’t matter whether the limited liability company functions in a manner similar to a limited partnership. That’s because it isn’t a limited partnership.

If you are operating your business as a limited liability company, however, remember that your limited liability company cannot file for relief under chapter 13. Only wage-earners can file chapter 13. That means people and not corporations. If you run your business in a limited liability company, most smart bankruptcy lawyers can figure out a way for you to help yourself and even your business through a chapter 13 filing.

Limited liability companies are a relatively new innovation. Although not mentioned in the Bankruptcy Code, the fine lawyers here on the Bankruptcy Law Network know how to deal with them. More information from our network attorneys is available here and here

Lakelaw represents people and small businesses in bankruptcy cases in Illinois and Wisconsin. For more information about small business bankruptcy from Lakelaw, click here, .

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