Yes, an LLC can file for bankruptcy. The company files in its own name under either Chapter 7 to liquidate and close, or Chapter 11 (often the streamlined Subchapter V) to restructure debts and keep operating. Chapter 13 is not available to an LLC at all, and Chapter 12 only fits a narrow set of farm and fishing businesses. The case belongs to the company as a separate legal entity, so it is distinct from any personal bankruptcy a member might file, though members can still be exposed on debts they personally guaranteed.
Chapter 7 When the Plan Is to Close
Chapter 7 is built for an LLC that has decided to shut down. A court-appointed trustee takes control of the company’s assets, sells them, and pays creditors in the priority order set by federal law.1Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee Members hand off the burden of winding the company down, which is the main practical advantage over a purely state-law dissolution where you have to negotiate creditor claims yourself.
One point surprises many owners: an LLC does not receive a discharge in Chapter 7. Only individual debtors get a discharge.2Office of the Law Revision Counsel. 11 USC 727 – Discharge In practice this rarely matters, because after liquidation the LLC no longer exists and there is nothing for creditors to chase. Where it does matter is with personal guarantees. Those survive the company’s Chapter 7 case and remain the guarantor’s problem.
The federal filing fee for Chapter 7 is $338, made up of a $245 filing fee, a $78 administrative fee, and a $15 trustee surcharge. Attorney fees for an LLC Chapter 7 vary with the complexity of assets and debts and commonly run into the low thousands.
Chapter 11 When the Plan Is to Keep Operating
Chapter 11 lets an LLC restructure while continuing to run. The company becomes what the Bankruptcy Code calls a “debtor in possession,” which means existing management stays in control of daily operations instead of handing the keys to a trustee.3Office of the Law Revision Counsel. 11 USC 1107 – Rights, Powers, and Duties of Debtor in Possession The court appoints a separate trustee only if it finds cause, such as fraud or gross mismanagement.
The heart of the case is the reorganization plan. The LLC proposes how it will change operations, renegotiate debts, and pay creditors over time. The court will confirm the plan only if it is proposed in good faith, each creditor class either accepts it or receives at least what it would get in a Chapter 7 liquidation, and the plan is feasible enough that another restructuring is unlikely.4Office of the Law Revision Counsel. 11 USC 1129 – Confirmation of Plan If some classes reject the plan, the court can still confirm it through cramdown as long as the plan is fair and does not unfairly discriminate.
Chapter 11 is expensive. The federal filing fee alone is $1,738, and attorney fees for even a simple case typically start around $15,000 and climb from there. The LLC also owes quarterly fees to the U.S. Trustee’s office for as long as the case stays open, calculated on the amount the company disburses each quarter.5U.S. Department of Justice. Chapter 11 Information A long case racks up serious money.
Subchapter V for Smaller LLCs
Congress built Subchapter V of Chapter 11 to make reorganization actually usable for small businesses. To qualify, an LLC’s combined secured and unsecured debts cannot exceed $3,024,725, and at least half of those debts must come from business activities.6U.S. Department of Justice. Subchapter V Small Business Reorganizations A pandemic-era increase to $7.5 million expired in June 2024.
Subchapter V removes much of what makes regular Chapter 11 unaffordable:
- No quarterly U.S. Trustee fees.5U.S. Department of Justice. Chapter 11 Information
- No disclosure statement unless the court orders one.7U.S. Bankruptcy Courts. Top 15 Features of Subchapter V
- The plan must be filed within 90 days of the order for relief.
- Cramdown is easier: the court can confirm without any impaired class accepting, and the absolute priority rule does not apply.
- The court generally does not appoint a creditors’ committee.
A Subchapter V trustee is appointed, but the trustee’s job is to help broker a deal, not to take over the business. The LLC stays in possession and keeps operating. If your debts are under the cap, Subchapter V is almost always the better choice than traditional Chapter 11.
Chapters That Are Not Available
Chapter 13 is limited by statute to individuals with regular income.8Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor A sole proprietor can use Chapter 13 for personal and business debts together, but the moment the business is an LLC, that door closes for the entity. Members can still file their own Chapter 13 for personal debts, including guaranteed business debts, but the LLC itself cannot.
Chapter 12 is technically open to an LLC, but only if the company is majority-owned by a single family, gets at least 80% of its asset value from farming, and carries no more than $10 million in total debt, among other conditions. For the small set of farm-based LLCs that qualify, it offers a streamlined reorganization at lower cost than Chapter 11.
Getting the Filing Authorized
Before an LLC walks into bankruptcy court, the right people inside the company have to approve the filing. Who those people are depends on the operating agreement. In a member-managed LLC, all or a majority of members typically need to consent. In a manager-managed LLC, managers may have authority, but the operating agreement often reserves major decisions like bankruptcy for member approval.
This is not a formality. Courts have dismissed bankruptcy cases where the person who signed the petition lacked authority under the operating agreement. A federal bankruptcy appellate panel enforced an operating agreement provision that prohibited a manager from filing, and the case was thrown out. If your operating agreement is silent, state default rules fill the gap, and those vary. Hold a formal vote, document it in a written resolution, and attach the resolution to the petition.
Watch for blocking provisions. Some operating agreements, especially where outside investors are involved, require unanimous consent or approval from a “special member” designated by the investor. These provisions exist to keep operating members from filing on their own, and courts have generally enforced them.
What Members Still Owe After the LLC Files
An LLC bankruptcy does not erase debts that members personally guaranteed. Small-business lenders usually demand personal guarantees, and those obligations survive the company’s case in full. If a Chapter 7 liquidation does not pay off a guaranteed loan, the lender can pursue the guarantor’s personal assets.
Members also face exposure in a few other situations:
- Veil piercing. If members mixed company and personal funds, ignored formalities, or left the LLC undercapitalized, creditors can ask the court to disregard the LLC’s separate existence and hold members personally liable.
- Fraud or personal wrongdoing. A member who defrauded a lender, made false representations, or personally caused an injury while acting in a business capacity is liable regardless of the LLC.
- Unpaid employment taxes. The IRS can impose a trust fund recovery penalty on any member or manager who was responsible for collecting and paying over withholding taxes and willfully failed to do so. The penalty equals the full unpaid trust fund taxes and is not dischargeable in the LLC’s bankruptcy.
Members whose personal exposure is significant should look at their own finances early. Sometimes a member needs a separate personal bankruptcy to handle what the LLC’s case leaves behind.
Transfers That Can Be Clawed Back
What the LLC did in the months before filing gets scrutinized carefully. The trustee can undo asset transfers made for less than fair value during the two years before filing, whether the LLC intended to cheat creditors or simply did not get reasonably equivalent value in return.9Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations Selling equipment to a member’s spouse at a fraction of its worth is a classic example. State fraudulent transfer laws often extend the lookback beyond two years, giving the trustee even more reach.
The trustee can also reverse payments to creditors made during the 90 days before filing if those payments gave the creditor more than it would have received in a Chapter 7. For payments to insiders, including LLC members and their relatives, the lookback stretches to one year.10Office of the Law Revision Counsel. 11 USC 547 – Preferences If a member got paid back on a loan during that year, expect the trustee to demand the money.
This is why bankruptcy attorneys tell clients to plan the filing well in advance. Shuffling assets or paying favored creditors in the run-up turns a routine case into a fight.
When Creditors File the Case for You
An LLC does not always choose the timing. Creditors can force it into bankruptcy through an involuntary petition under Chapter 7 or Chapter 11. If the LLC has 12 or more creditors, at least three must join the petition and their undisputed, unsecured claims must meet a minimum dollar threshold that the courts adjust periodically. With fewer than 12 creditors, one creditor meeting the threshold can file alone.11Office of the Law Revision Counsel. 11 USC 303 – Involuntary Cases The LLC can contest the petition, and the court will grant relief only if the company is generally not paying its debts as they come due.
Alternatives to Consider First
Bankruptcy is not the only route out. Two alternatives are worth weighing.
An assignment for the benefit of creditors is a state-law wind-down in which the LLC transfers its assets to a third-party assignee, who liquidates and distributes to creditors. It works like a private Chapter 7 without federal court, an automatic stay, or a discharge. You can pick the assignee, which sometimes buys a smoother process. The tradeoffs: secured creditors can still foreclose because there is no automatic stay, and the LLC cannot sell assets free and clear of liens without creditor consent.
An informal workout can also work when the LLC’s trouble comes from a small number of major creditors. Direct negotiations to stretch deadlines, cut principal, or restructure terms can resolve things quickly and quietly. The risk is that any single creditor can walk away and sue, because nothing prevents collection while you negotiate.
If those options are not realistic and the company either needs to close or needs the protection of the automatic stay to reorganize, bankruptcy is the tool built for the job. Chapter 7 for the exit, Subchapter V or Chapter 11 for the turnaround.