Bankruptcy is a Federal Law, whereby the assets of an individual or an organization are handed over to a trustee so that the outstanding debts can be paid off. Bankruptcy is usually declared by debtor(s) when more money is required to be paid back than the debtors can afford to shell out. Financial experts suggest that bankruptcy should be treated as one of the last debt solutions.

People with debt problems try to find a solution on their own. They try out different debt solutions like debt consolidation, debt settlement and debt management program. However, it has been proved that if you take the assistance of a professional, the process of getting out of debt becomes faster.

Opting for debt help can save you from the fury of the collection agencies. The collection agencies are known to harass debtors to no end this further agonizes a debtor.

Changes brought about by the new bankruptcy law:

In the last couple of years, many changes have taken place in bankruptcy laws. The new bankruptcy law introduced recently brought about certain key changes. They are as follows-

A legitimate reason for filing for bankruptcy-

Earlier you could file for bankruptcy as per your requirements and your whims. Filing for bankruptcy was not difficult and you could start all over again if you had not been maintaining a very healthy financial status. However, with the introduction of the new bankruptcy law, several changes have set in and you are required to have a good reason to file for bankruptcy. A good reason may include someone’s death, an unexpected event etc. The reason should be legitimate enough for you to qualify.

Waiting period-

Previously, if you had been facing debt problems, you could file for bankruptcy more frequently. As per the new bankruptcy law, the waiting period before you can file for bankruptcy again has been greatly increased.

Types of debts qualifying for bankruptcy-

In previous years, a debtor could just wipe out all his debts by filing for bankruptcy. According to the new bankruptcy law, only certain type of debts can be wiped out and a debtor has to pay for the debts that do not qualify under the new bankruptcy law.

Approval from a bankruptcy judge-

The decision of filing for bankruptcy no longer rests in your hands. A bankruptcy judge has to first approve that your financial condition is bad enough for you to file for bankruptcy. It is the decision of the judge alone whether you should file for bankruptcy or not.

However, if it is found that you are eligible for filing for bankruptcy, you should always seek help from a trained professional handling such cases.

Statistical data indicating the rise in the incidence of bankruptcy filings-



The period 30th June 2007 to 30th June 2008 manifested the following changes-

Filing for Chapter 7 bankruptcy increased by 36.7% Business related bankruptcies increased by 41.6%.

Non Business bankruptcies increased by 28.4%

Total filings for bankruptcy (business as well as non business) was 617, 660 in 2006.

As of 2007 total filings recorded were 850, 912. This included both business as well as non business filings.



Statistics given here indicates that the incidence of filing for bankruptcy has increased over the years. Since the laws pertaining to bankruptcy was more lenient in the previous years, majority of the debtors seeking debt solutions used to file for bankruptcy. However, the new bankruptcy law lays down stringent rules and the decision to file for bankruptcy is at the discretion of the judge handling bankruptcy.

Jason Holmes is a reputed author and he has been writing articles on debt solutions. He has also written for the Debt Consolidation Care community. His write ups are very informative and have proved to be very helpful those in debt.

Since Limited Liability Corporations (LLC) are a relatively new type of business entity, LLC owners have some difficulty finding out how courts will treat their bankruptcy LLC cases. As an LLC declaring bankruptcy, the owner may get some liability protection since their business is a separate legal entity. However, this protection is not absolute. Why? B ecause as CEO of the legal entity, the owner has fiduciary duties that effectively give them the same liabilities as a sole proprietorship.

So some important questions remain. Will the judge treat them like an LLC, as a corporation or as a partnership? What will happen during a bankruptcy LLC when the company has only one owner? Currently, there is no code or law that directly addresses bankruptcy LLC proceedings.

Partnership Versus Corporation In Bankruptcy LLC

There are two different ways a bankruptcy court may handle the case of Limited Liability Corporation with a single owner. First, the judge may treat the bankruptcy LLC like a partnership. In this case the court would dissolve the LLC and deal out all remaining assets to creditors. Anything remaining goes to the owner. And as in most business bankruptcy cases, there isn’t usually much left.

But the judge may decide the LLC is a corporation. Here the judge would not dissolve the owner from the bankruptcy LLC. The former owner could give over ownership interest to another party. If the former owner decided not to do this, the bankruptcy judge would treat the former owner like a corporate shareholder. The owner would not have to give up stockholdings, just as a shareholder wouldn’t in a large corporation bankruptcy case. Usually under this scenrio, the owner ends up a little better off.

Legalities of a Bankruptcy LLC

One of the greatest drawbacks to filing bankruptcy as an LLC is that owner has no idea how the judge will treat them. Unfortunately, there are no specific rules for dealing with a Limited Liability Corporation in a business bankruptcy filing.

Because of this, there may be several different factors that a bankruptcy court considers when deciding what to do. The most important factor is the number of member owners in the corporation. That said bankruptcy laws do not define the number of individual owners a corporation must have, especially for an LLC.

Because the lines are so blurry here, it is hard to tell how the bankruptcy court will decide who needs to consent to the bankruptcy filing. All members of the LLC may have to consent to the bankruptcy LLC filing. On the contrary if the judge treats it like a corporation, then only one member must consent. Most often in LLC proceedings, the bankruptcy judge looks to state laws and codes to determine how to deal with the bankruptcy. Therefore these proceedings may vary from state to state.

Filing The Bankruptcy LLC

Before filing for bankruptcy as a corporation or partnership, schedule an appointment with a bankruptcy lawyer to discuss these issues. As an alternative, you can also talk to state or county bankruptcy officials who can clarify how they will determine the proper procedures for bankruptcy LLC. Make sure you interview several lawyers before you select one. They should specialize in bankruptcy and be well versed in the specific rules for your state. If possible, try to find an attorney who has experience filing bankruptcy cases for Limited Liability Corporations.

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