Should I file as LLC or as individual?

[wammyjammy]

Hi!
I have been reading many of your helpful posts over the past weeks. It's great so many people are being so supportive of each other in one of the hardest times of their lives.

My situation is that I used credit cards to fund inventory for a small business. Half of all my debt is on a single card, and that card was in my personal name. I had that card years before opening the business. Another card, which does have the business name on it (an LLC, of which I am the only member =sole proprietorship?) has a chunk on it, too. There are other debts, but this really sums up the question. Do I file as myself (an individual/consumer), since the card with the LLC name is really just my card, too? Or do I need to file twice? Or...?

If you need more info to be able to give an answer, I will provide what I can. Thank you so much! I am going to post more questions, too. I just think it would be most helpful to separate each question into its own post/thread.

[Ugh07]

Are you planning on closing the business or no?

[wammyjammy]

Closed a few months ago, actually. I have been planning for about a year now, so I am at the point of just going ahead and working on the paperwork and filing.

[justbroke]

If you're asking this question, then you should probably file for both! The problem is, that in an LLC, the debt usually follows the individual, especially in a closely held corporation. Additionally, I'm willing to state publicly, that you probably have personal guarantees for lines of credit used by the business and/or leases. If you file the LLC by itself, they'll just come after you personally as the guarantor.

Please go see some attorneys that specialize in small business bankruptcies to find out the extent of your personal liabilities.

[wammyjammy]

Yes, I was afraid I might have to file for both. The reason I thought maybe I didn't is, as you said, the debt follows the individual. And I thought that if the individual files, then the debt stops there. And, if this matters, I can state publicly (or in seclusion ;> ) that I do not have any other lines of credit or leases in the business name. Long story (aren't they all?), but except for the one credit card which has the LLC name on it (and which, of course, I applied and signed for), the debt all appears as consumer debt.

I really appreciate the insight here, guys!

[justbroke]

The real problem with a corporation is, that the business debt is always there. It can't be discharged. You have to dissolved the LLC. If the LLC has real assets, you'd need to file Chapter 7 for the business so that the Trustee could sell off the assets to pay creditors. IN any event, you would still need to file personal Chapter 7 bankruptcy to avoid the guarantees to hit you personally, which they will.

[despritfreya]

I beg to partially differ with my learned colleague.

Since the LLC will not get a discharge there is no reason for it to file. I believe all you will be doing is incurring unnecessary legal fees. If a creditor wants to sue the LLC, let it. Since the LLC has nothing and is about to shut down, the creditor would be suing a "dead person". If it gets a judgment, how is it going to collect?

If, the LLC has any assets, sell the assets. If the LLC owes any payroll or sales tax, pay the tax. If there is anything left, equally distribute it to creditors of the LLC. Make sure the funds never hit your personal bank account. Keep the $$ in the LLC account and keep details as to how they were paid out.

If the LLC has any equipment that is either leased or subject to a UCC contact the creditor and make sure the creditor takes back its property.

____________________

You, on the other hand, most likely need to file a bk. List all of your personal debt, any LLC debt you personally guaranteed, any LLC credit card to which you are an "authorized user" and, any LLC debt your are not sure if you personally guaranteed.

Best regards.

Des.

[justbroke]

I agree Des, I was only wondering if the LLC had assets. Otherwise, I would it dissolve quietly, just as I did mine. However, I do still receive phone calls. One of the creditors, after I told him that I personally filed bankruptcy stated that they needed to review whether they'd continue collection activity against the LLC. It isn't operating anymore, but that particular creditor stopped calling.

[despritfreya]

I agree Des, I was only wondering if the LLC had assets. Otherwise, I would it dissolve quietly, just as I did mine. However, I do still receive phone calls. One of the creditors, after I told him that I personally filed bankruptcy stated that they needed to review whether they'd continue collection activity against the LLC. It isn't operating anymore, but that particular creditor stopped calling.

Agree... I love it when a creditor of the entity calls and I remind it that the owner filed. Get the song and dance that the credit is going after the entity. Wish I could see their face when I obnoxiously tell them to go and sue the "dead person". Gotta love it.

Des.