As limited liability companies have become a preferred business. The assets of an LLC itself are not property and do not automatically become part of the member’s Chapter 7 estate. When one member of an LLC files for bankruptcy, the trustee will not try to become the manager of the property because the economic interest is an asset.
One issue that arises is where an LLC member’s interest has to be valued, and the LLC has assets and liabilities. If the LLC is liquidated, the assets would be sold, but we first used to pay a debt of the LLC. And if there were any remaining value, that value would have been distributed to pay the members’ creditors.
A trustee can’t ignore the LLC liabilities where the debtor has an entire or partial interest in an LLC. As mentioned, the membership interest is something that a trustee can liquidate. In many circumstances, the LLC member’s claim is exempted in whole or part based upon exemptions available under the bankruptcy code.