Will my membership interest in a North Carolina LLC be impacted if I file bankruptcy?

Small business owners often need specialized advice.

Small business owners may benefit by speaking with a certified bankruptcy specialist.

There was a really good question posted on AVVO.com today regarding the impact of bankruptcy filing on a member’s interest of an LLC. As an Asheville bankruptcy lawyer, this was my response:

Frankly, I have found that the NC statute (NCGS 57C-3-02) is one that many attorneys, including bankruptcy attorneys, do not even know exists! Years ago, I asked a bankruptcy Trustee what his thoughts were about the statute and he said, “Huh?” True story.

In any event, the statute exists and is on the books, regardless of whether attorneys and Trustees know about it or not. The important thing is the ramifications of the statute. What I have found in filing over 2000 cases during the past decade and a half is that, from a practical standpoint, nothing happens. Maybe this is due to attorneys not knowing about the law, or maybe it is because the actual effect of the law is minimal. Moreover, if you look at the law carefully, most of the effects of it can be remedied by unanimous consent of the other members. Lots and lots of LLCs have only one Member. In that case, if the member files for bankruptcy protection, she can arguably simply vote to reinstate all of her rights post-filing. Many other LLCs are closely held between family members. Assuming they all get along, these family members can arguably vote to reinstate the rights of a member who filed for bankruptcy protection. Finally, operating agreements can be written at the outset to circumvent this, and other, issues involving bankruptcy and debt issues of the members.

If you and/or a co-member of a NC LLC are considering filing for bankruptcy protection then you should consult with a qualified bankruptcy attorney. As an Asheville Bankruptcy attorney and bankruptcy specialist, I would recommend a specialist who is certified by the NC State Bar. A specialist, particularly one who files business bankruptcies, can best discuss your options. I would be happy to discuss your options with you. Please contact me if you have an LLC and are facing debt issues.