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May 2011

After bankruptcy. Help! They're suing my LLC!

Posted by / in General Information About Bankruptcy Law / 16 comments

Many people who file bankruptcy are small business owners.  Especially owners of one-person small businesses.  People like the freedom of being their own boss, but it can be a tough way to make a living.

small business

Operating a small business can be a tough way to make a living

A lot of those small businesses are set up as corporations or LLC’s.  Why?  People have heard that they are not liable for the debts of their business if they incorporate.   That’s true.

(Now starting out, nearly everyone you do business with will want you to sign a personal guarantee.  So that protection doesn’t go as far as you’d like.  And those personal guarantees for a lot of people are the reason for the personal bankruptcy.)

The advantage of setting up a corporation or LLC turns against you, if you have to file bankruptcy.  Why?  Just like you are not liable for the business’s debts, the business is not covered by your bankruptcy.  You are not the corporation; the corporation is not you.

That hits home hard after the bankruptcy, when creditors keep sending bills, or even send court papers, in the name of your corporation or LLC.   What to do?

Well, if the business is closed, do nothing!  Go back to square one.  Why did you set up the corporation or LLC in the first place?  Because you are not liable for the corporation’s debts.  So if they bill the corporation, you don’t care.  If they sue the corporation, you don’t care.  That was the whole point.  You are not the corporation.  You are not liable for the corporation’s debts.

If the business is closed, why do the bills keep coming?  Why would collection agencies go after closed businesses?  To scare people–specifically to scare people into paying.   The key thing here is, don’t be scared into paying.

“I’ve filed bankruptcy, so I don’t have to pay.  The XYZ Company is out of business, so it can’t pay.”  Keep those two things in mind and you’ll be fine.

(Suppose you are still operating.  Now that’s trickier.  We need to talk about that in person.  If you had a lawyer, accountant or business advisor when you started up, you need to go back to that person again, too.  It’s really important to do that right.)

But if you have closed, then it’s simple.  You don’t care.

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Robert Weed has helped fifteen thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.

  • Daniel Press

    July 25, 2011, pm31 4:06 PM

    One suggestion – whoever is registered agent should resign. Then there’s nobody to serve/harass.

  • Robert Weed

    September 23, 2011, am30 10:06 AM

    Just saw a husband and wife today who filed personal bankruptcy, not with me, in 2009. In April 2011, Yellow Book sued their corporation–and also sued them personally. (Suing them personally was a direct violation of the bankruptcy law!) They came to see me, because the lawyer who handled their 2009 bankruptcy did not act like he was willing to help.

    Even though I did not do their bankruptcy, I still agreed to be their lawyer to fight Yellow Book. Why? The bankruptcy protections don’t mean a thing if people can’t get lawyers to fight for them when those protections are violated.

    Not every lawyer does that. I do.

  • scott munroe

    September 23, 2011, pm30 6:13 PM

    I recently filed for chapter 13 personal bankruptcy which included a personal guarantee lease under my S corp. I just received a summons from leasing company lawyer suing my S Corp which has been inactive for over a year with no bank accounts or assets.( only reason for not closing corp. is cost in doing so.)I was told by lawyer that with nothing being there they would not pursue which they are now doing.Now Im being told to pay for another costly bankruptcy for a corp. that has absolutely nothing.Is it possible to close corp. while this is going on? Thank You

    • Robert Weed

      September 24, 2011, am30 8:21 AM

      Yes, you just need to close the corporation. Even if you file a Chapter 7 bankruptcy for the corporation, the corporation would still need to be closed. See Wikipedia on this. http://en.wikipedia.org/wiki/Chapter_7,_Title_11,_United_States_Code. That’s because only individuals (“people)–not corporations–get a Chapter 7 discharge. http://www.law.cornell.edu/uscode/11/727.html#a_1.

      I hear a lot about bankruptcy lawyers who will charge you to do a Chapter 7 bankruptcy for a corporation that only needs to be closed. Maybe they don’t know better; maybe they do. I don’t know which is scarier.

      (Now sometimes it’s the client, not the lawyer, who insists on doing an unnecessary Chapter 7 for a corporation of LLC. I’ve had some of my clients really argue with me about this.)

  • sal

    April 22, 2012, am30 11:51 AM

    I hear so much conflicting information & unfortunately there are a lot of lawyers with an agenda to make money…here is my scenario… I had a business, for 23 yrs, in NYC that did business with a company for 14 yrs. They went chap 11 in 2010 & I lost 8 grand. I never knew what would be the final insult until my s corp was hit with a preference suit for 29 grand this April. My company has filed with the IRS it’s final returns and has been closed since June of 2011. I get one attorney, IN THE SAME OFFICE who says “what do you care…let them make a judgement against the closed company”…the next day I get his partner who says ” you don’t want a judgement to happen”. Who is telling the truth?

    • Robert Weed

      April 22, 2012, pm30 4:41 PM

      You know my general advice on that, since it’s right here. There’s hardly ever any reason to file a bankruptcy for an out of business corporation or LLC. Maybe the lawyer who thinks you should knows more about your specific situation than I do. I hope he does.

  • sal

    April 22, 2012, pm30 12:59 PM

    by the way…I have not filed for bankruptcy & neither has my S corp…it’s just out of business

  • sal

    April 23, 2012, am30 8:45 AM

    No ….they know as much as you do. I haven’t hired any of them. It’s the conflicting information that makes me uneasy since the partnering attorneys contradict each other and they are polar opposite in advice. This is also true when solicitation letters are sent from law firms who offer me their services in this matter. Will any of these ever be honest enough? I have found the answer to be no, since they are looking for work and it’s not in their best financial interests to be honest.

  • jen

    June 2, 2012, am30 10:35 AM

    Hi my husband and I filed Chapter 7 bankruptcy….with his contracting business….months later a customer wants to sue because her heat pump is not sufficient which it is….what do we do???? The company is no longer in business

    • Robert Weed

      June 2, 2012, pm30 1:58 PM


      I’d need to know more. Was his contracting business set up as a corporation or an LLC, or was it just a sole prop. Who is she suing? Your husband or the business. And who filed bankruptcy?

  • Susan

    August 16, 2012, pm31 3:43 PM

    My ex husband and I had a business in MD, we filed for bankruptcy and turned the companies over to the trustee to manage and we were told we no longer had anything to do with them. He & I moved, divorced and have gone on with our life to the best we can (we lost everything) And now the Bankruptcy attorney is coming after me and/or him for payment on the corporation debt to him. Is that possible? Can he do that?

    • Robert Weed

      August 17, 2012, am31 11:10 AM


      Your question is a lot more complicated than my ability to answer. You need a lawyer there in Maryland to look at all the papers in your bankruptcy and figure out what was and is going on.

      It sounds like your bankruptcy more complicated than I would have taken on–so I’m sure not qualified to sort it out at a distance.

      A lot of people who think they need business bankruptcies really don’t. And I do those. For people who really need a business bankruptcy, very few, I’m not qualified. Some are done by lawyers who know how to do business bankruptcies. Sometimes they are done by lawyers who don’t know that they don’t know how to do them. I don’t know what you are into.


  • Dolores Cardillo

    August 19, 2015, pm31 8:33 PM

    My husband owned a small roofing and siding for 40 years. He formed an llc in 2000. In December 2013 he was ready to retire at age 67, when 2 law suits appeared in the mail. He along with a builder and others were being sued by 2 homeowners in the same community. We closed our doors and ceased doing business March 31 2014. The 2 suits were settled by our insurance carriers. We were told we could not close the llc until the law suits were settled. In March 2015 suits were settled and we legally closed the llc in April 2015. The day after we closed the llc, we received another lawsuit from yet another homeowner in the same community. Same scenario, suing builder, other contractors and my husband’s llc. Again it was given to our insurance carriers and we were told they would handle it. Now again on August 2015, another 2 suits have come in the name of the llc. Again, we have sent these onto our insurance carrier. The problem is always the same. Homeowners have moisture problems. The stucco is the culprit, but roofing, gutters, siding and others as well as the builder is being sued. This project was done 8 to 20 years ago. In all the years past, we were never called in for any roofing problems. The first two settled cases were split (not evenly) but split among all parties. I know I have read that a closed llc can be sued for 3 years after it has closed, but should we be worried. Some folks keep telling my husband to have his llc declare bankruptcy, I don’t understand how a closed llc with no assets can declare bankruptcy. We just sold our home of 39 years and have moved into a nice over 55 community. We have some retirement funds, but we’re far from rich. We worked side by side for 40 + years and this problem is keeping us up nights.

    • Robert Weed

      August 19, 2015, pm31 8:50 PM


      I can tell you that filing bankruptcy for the LLC probably accomplishes nothing. But you should talk to a lawyer in your area about whether you have any personal exposure.

  • Em

    November 25, 2016, am30 11:03 AM

    Hello Mr Robert Weed

    Thank you for all the info

    I am a silent partner in an LLC (30% owner) of a mechanic shop. My business partner/mechanic ran into some hard times and the LLC buisness account is -$2000. ($1,600 of that is overdraft fees, thats just crazy, he had automatic payments set up on a weekly basis and when they failed the companies tried multiple times, thus multiple fees)

    The bank is threatening to “Charge off” the account. Can i be personally held liable for any thing? We are both on the business bank account. I have not used or withdrawn any money from the account since we opened (I helped fund it with the first $3,000). (the deal was with me helping him start the business, i could get repairs for myself at base cost)

    • Robert Weed

      November 25, 2016, pm30 2:17 PM


      It depends on what you signed when you put yourself “on the business bank account.”

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