Legal Question in Credit and Debt Law in Wisconsin

Collecting Debts from LLC Company Threatening Bankruptcy

Yes--creditors can sue debtors who do not pay an enforceable debt when it comes due. Of course, as with all lawsuits, winning a judgment from a lawsuit is not the same as getting your money, even if the debtor does not file bankruptcy. And if you sue there is still the possibility that they will follow through with their bankruptcy, in which case creditors must suspend all litigation or other collection efforts unless they first get approval from the bankruptcy court (i.e., an order lifting the automatic stay). The one collection mechanism which creditors can still use during a bankruptcy is to file a claim with the bankruptcy court. If the trustee recovers any assets, the assets will be divided pro rata among creditors under ranked priorities set forth in the bankruptcy code. The rate of return on bankruptcy claims seems to have improved under the bankruptcy laws. If individual debtors are guilty of any criminal conduct or fraud in obtaining credit, it may also be possible to object to their discharge in bankruptcy. Finally, some vendors obtain "personal guarantees" from corporate customers, indicating that the company owners will be personally liable for certain debts if the company does not pay. With one of these, it is also possible to sue the sureties in addition to the LLC.

Re: Debt from an LLC Company

It is likely not an issue of "recourse," but recovery. If they have nothing to get, it may be a waste of time for that amount and a lawyer is not likely to take it. If they file for bankruptcy, file a claim, assume you'll get nothing, and be happy if you do get something.