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Home / Articles / Court Considers Chapter 7 Trustee's Ability to Sell LLC Property in Sole Members Bankruptcy
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19
June
2012

Court Considers Chapter 7 Trustee's Ability to Sell LLC Property in Sole Members Bankruptcy

A bankruptcy trustee has the right to liquidate any property of a Chapter 7 Debtor subject to claimed exemptions and liens. Does this right extend to a membership interest in an LLC where the sole member files bankruptcy? The Bankruptcy Court for the Western District of Michigan addressed this issue recently in In re Hopkins, Bankr. W.D. Mich. (Feb. 2, 2012). In Hopkins, the debtor was a sole member of an LLC. The Trustee sought to sell the real property owned by the LLC, not just the membership interest. The Court denied the Trustee's request to sell the property on the basis that a member has no specific interest in LLC property and therefore was not property of the bankruptcy estate that the Trustee could liquidate for the benefit of creditors.

Nonetheless, the Court did authorize the Trustee to act as the sole member of the LLC and effectively cause the LLC to sell the real estate. The Court further allowed the Trustee to distribute the sale proceeds to the LLC's creditors and any remaining proceeds to creditors of the individual debtor. This case provides a warning for an individual to think twice before filing a Chapter 7 bankruptcy because it might place any ownership interest in an LLC in jeopardy and in the hands of the Trustee.

FREQUENTLY ASKED QUESTIONS

Can I file a Chapter 7 Bankruptcy case and still keep my home?

Short Answer: Yes, if the Debtor is current on his/her mortgage payments and there is no significant equity in the home after deducting the mortgage debt and homestead exemption.

Author; Michael I. Conlon

About the Author

Michael I. Conlon

Michael I. Conlon

Mr. Conlon practices in the areas of insurance defense, no-fault/negligence law, appellate law, bankruptcy, estate planning, mediation, entertainment law, publishing law, and municipal law. He has substantial experience in evaluating and litigating automobile accidents, premise liability claims, first-party/PIP claims, and defective product matters. He frequently analyzes insurance coverage issues. Mr. Conlon has been involved in numerous appeals, two of which have resulted in published opinions by the Michigan Court of Appeals. Mr. Conlon has completed the Institute of Continuing Legal Education's Civil Case Mediator Training.

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Articles

  • Court Considers Chapter 7 Trustee's Ability to Sell LLC Property in Sole Members Bankruptcy

    Michael I. Conlon

    A bankruptcy trustee has the right to liquidate any property of a Chapter 7 Debtor subject to claimed exemptions and liens. Does this right extend to a membership interest in an LLC where the sole member files bankruptcy? The Bankruptcy Court for the Western District of Michigan addressed this issue recently in In re Hopkins, Bankr. W.D. Mich. (Feb. 2, 2012).

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