What Happens to My LLC Interests in Chapter 7 Bankruptcy?
When starting a new company in Florida, many choose to structure their business as a limited liability company, or LLC for short. An LLC offers several advantages over standard corporate structure as they are more flexible in terms of fiscal liability for the owning partners. Many states have unique statutes governing the creation of an LLC and Florida is no exception. The first act regarding LLCs was established in the Florida Statutes in 1982 and they saw immense growth in popularity following the late 90’s repeal of state corporate income tax. The laws governing LLCs underwent a major revision again in 2010 which altered the process of asset protection in the case of single member vs. multiple partner LLCs.
Olmstead vs. the Federal Trade Commission was a case revolving around a single member LLC charged by the FTC with running a credit card scam. The company’s assets were frozen and the FTC sought $10 million in restitution. The arguments centered on the charging order for LLCs which offers protection for the company’s assets against the outstanding debts of an owning partner. The sole owner of the LLC in the case attempted to protect the assets of his company against his personal debt to the FTC through charging order protection. The assets in question were the proceeds gained from the scam which had been transferred to the single-member LLC in an attempt to protect them from the FTC charging lien.
However, the Florida Supreme Court ruled that as a single-member LLC, the sole partner must surrender “all right, title and interest” of the company to cover outstanding debts. The Court’s decision was significant as it was the first defining charging order protection for LLCs within the state. The ruling of the majority focused on the language of section 608.433(4) of the Florida Statute for LLCs which did not make it clear a charging order was the “sole and exclusive remedy” for restitution. As a result, an alternate ruling could be issued by the court depending on the unique facts of the case. As it was obvious the sole-member LLC was functioning nearly exclusively for debt-protection purposes, the court ordered the debtor hand over the LLC’s assets as repayment.
The ruling was particularly influential in the case of Chapter 7 bankruptcy and those involved with limited liability companies. For those in single or multiple partner LLCs who may be contemplating a Chapter 7 bankruptcy in Fort Lauderdale, it is important to discuss your options with an experienced bankruptcy lawyer. Outlining your value to the company with an attorney including assets, liabilities, profits and losses is paramount prior to filing for Chapter 7 bankruptcy and appointing a trustee to manage the LLC’s assets. Contact the DiTocco Law Group, PLLC today about your situation for a free consultation with a knowledgeable Fort Lauderdale bankruptcy lawyer.