Generally

• The first question you must answer is whether you want to remain in business or whether you want to close shop permanently and move on. Both options are available under the bankruptcy code.
  
  Under either option, bankruptcy provides an immediate benefit as soon as you file the bankruptcy petition. The law imposes an "automatic stay" that puts a hold on all debt collection activity. This means lawsuits, foreclosures, repossessions, phone calls, emails, letters and personal visits from debt collectors must immediately stop. This buys you some time to get back on your feet, or to figure out how to best close down the business.
  
  

Chapter 7

• An LLC can elect to file Chapter 7 liquidation bankruptcy. Under Chapter 7, the LLC will terminate permanently and no longer exist under the law. All business assets owned by the LLC will be sold and the sales proceeds will be used to pay off as many of the LLC's creditors as possible. The remaining debts of the LLC, if any, are discharged, meaning they are no longer legally enforceable by the creditor. The LLC disappears for all legal purposes.
  
  

Chapter 11

• If you want the LLC to remain in operation, you can file Chapter 11 reorganization bankruptcy. Chapter 11 is a complex form of bankruptcy, and filing for Chapter 11 bankruptcy requires extensive work from professional attorneys, accountants and sometimes financial advisers. Professional fees routinely exceed $100,000, so Chapter 11 is typically not a viable option for most small businesses.
  
  Chapter 11 requires the presentation of a plan for how the LLC will reorganize to begin making money again and how the LLC will pay off its debts. Often, the debts are reduced or the time period to repay the debts is extended by the bankruptcy court.
  
  

Chapter 13

• The final bankruptcy option for an LLC is Chapter 13 debt adjustment. Chapter 13 is a less intense version of Chapter 11, although under Chapter 13, the LLC is not required to formally reorganize. Instead, the LLC presents a debt repayment plan that shows how the LLC will repay its debts over time. The repayment plan will "adjust" many of the LLC's debts, which means the debts are either reduced or they are modified for better repayment plans such as longer amortization periods or lower interest rates. These new, adjusted terms become effective as long as the bankruptcy court approves the plan. Once a plan is approved, creditors have no option but to accept payment under the plan.
  
  

Expert Insight

• If you file for bankruptcy as an individual rather than a business entity, you can choose to hire an attorney, or you can represent yourself. An LLC, however, does not have a choice. A business entity like an LLC must be represented by an attorney.
  
  Because hiring an attorney is inevitable for an LLC filing bankruptcy, it makes sense to meet with a bankruptcy attorney to discuss the best option for your LLC. Most attorneys will provide a free initial consultation where you can explain your situation and find out if bankruptcy makes sense, and, if so, under what chapter. This will help you make a more informed decision about how to save your LLC.