How to File Bankruptcy for an LLC: 7 Steps From Member Consent to Petition

To file for bankruptcy for your LLC, you must file the bankruptcy petition in your LLC’s name with the appropriate federal bankruptcy court. As with all bankruptcies, you must fill out several bankruptcy schedules listing your assets and debts and get the counsel and advice of a bankruptcy attorney. Filing an LLC bankruptcy is a formal, ritualized, and many-stepped process, all of which you must faithfully complete if the LLC’s bankruptcy is to end with success. The members of the LLC vote to authorize the bankruptcy filing as required by the company’s operating agreement, choosing to file Chapter 7 (liquidation) or Chapter 11 (reorganization), and then the next step is to hire a bankruptcy attorney and gather your financial records. The LLC bankruptcy petition and schedules you must fill out and file come next, so accuracy is essential. You must also find the appropriate federal bankruptcy court in which to file your petition, and a fee is involved, too. An automatic stay that halts all debt collection procedures goes into effect when the petition is filed.

Legal Authority

You can’t simply decide for yourself to put your LLC through bankruptcy. The LLC is not your personal property, and the LLC is a legal entity with a distinct existence apart from its members. Also, other LLC members may not share your belief that filing for bankruptcy is in the LLC’s best interests. Consult your LLC’s operating agreement or the state laws where the company was formed on how much support your bankruptcy filing needs. As the Price v. Gurney court, among others, has found, if those filing a petition lack the legal authority to do so, that is a fatal flaw and means the bankruptcy court must dismiss the petition. A January 2025 Illinois court dismissed a Delaware LLC’s Chapter 11 because an independent manager, whose consent the operating agreement required, had not given it. Also, some courts have refused to enforce lender veto clauses.

A Chapter 7 or Chapter 11 Petition

When filing a petition to put your LLC into bankruptcy, you’ll need to choose whether it is a Chapter 7 or Chapter 11 petition. Which you choose depends on whether your LLC will survive the bankruptcy. When you file Chapter 7 with the bankruptcy court, the court appoints a trustee who sells the LLC’s assets to satisfy its debts. Your LLC can’t receive a Chapter 7 discharge because only individuals receive discharges. Within 21 to 40 days of the filing date, the bankruptcy court schedules a meeting of creditors.

Chapter 11 reorganizes the company and takes its debts through a restructuring process so it can live with them and still survive. Generally, Chapter 11 means that you are a debtor-in-possession and keep operating the business. You eventually work out a plan, over time, for paying off the creditors. The bankruptcy code sets up a special category of Chapter 11 for small businesses, called Subchapter V. To qualify, the business’s debts must be $3,424,000 or less, and it requires a plan due within 90 days unless the court extends it.

Make the LLC Bankruptcy Filing

Filing on behalf of an LLC is quite different from filing for yourself. Bankruptcy courts say that you, as an LLC owner, cannot represent the company. An attorney admitted to practice before that particular court must represent the company in bankruptcy court.

As you prepare to make the LLC bankruptcy filing, collect all company financial records and then hand them to your bankruptcy attorney. With Chapter 11, you will eventually have to draw up a payment plan for creditors, and so you’ll need detailed and updated records to show what’s feasible. When filing the petition for bankruptcy, small business debtors and subchapter V debtors attach to the petition their latest balance sheet, statement of operations, cash-flow statement, and federal tax return. If any of these documents aren’t available, the debtor must instead file a sworn statement that they don’t have the documents and why they don’t have them.

Next, fill out the right form. You’ll use the 200-series non-individual forms, not the 100-series individual forms. Begin by filing Official Form 201, Voluntary Petition for Non-Individuals, signed by an LLC representative authorized to sign on behalf of the company, and checking one chapter. When you file the petition, you’ll also file schedules of assets and liabilities and income and expenditures, unexpired leases and executory contracts, and a statement of financial affairs. If you don’t file the schedules with the petition, the rules let you file them within 14 days after filing. If you choose Chapter 11, you also file a list of the 20 largest unsecured creditors, excluding insiders.

Make sure you file in the correct bankruptcy court. The debtor files in the district where its domicile, principal place of business or residence is located. The filing fee for Chapter 7 non-individual bankruptcy is $338. The filing fee for Chapter 11 is $1,738.

An automatic stay goes into effect when the petition is filed, ending the creditors’ debt collection efforts. The automatic stay gives the debtor a temporary breathing spell to attempt negotiations with the creditor. Sometimes the secured creditor can ask the court to lift the stay to the extent that the collateral lacks equity and the property isn’t essential for a successful reorganization. Meanwhile, in Chapter 11, the debtor in possession files monthly operating reports, which a U.S. trustee assigned to the case monitors.

Chapter 11 ends with a plan. In bankruptcy jargon, a plan is the debtor’s proposal for paying off the debts and ending the bankruptcy. Creditors whose rights will be affected by the plan vote for or against the plan. The bankruptcy court may confirm the plan if the required votes and legal requirements are met.