In my LLC Bankruptcy, will loan debts get paid before judgments? 9 Answers as of July 11, 2013My LLC sells a product. If that product is involved in a mishap and we are subsequently sued and a judgment issued against us, will our lenders be paid first or will the assets be allocated to all claimants (lenders, suppliers, judgment-holders, etc)? Specifically, if I make a loan to my LLC (assume a properly documented loan made from personal funds), will I be able to recover that loan ahead of payments on a judgment that forces the LLC into bankruptcy?
Colorado Legal Solutions | Stephen Harkess
If a loan is secured by property and the lien properly perfected, then that property cannot be used to pay other creditors until the lien holder is paid. However, if there is no security agreement or mortgage recorded, then your debt will be at the bottom of the list of priorities along with court judgments, credit cards, and other unsecured debts.
Answer Applies to: Colorado
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
You will be the last person to get paid because you are an insider." In fact you might have to give payments back to the LLC. If the loan is "secured" by the assets of the LLC the trustee can set that aside as "preference" under certain circumstances. Assuming you get over those 2 hurdles, all unsecured creditors are paid pro rata, meaning they all get the same number of cents on the dollar. A judgement creditor might jump to the head of the line and be considered a "secured creditor" if they have an "abstract of judgement" and the LLC owns real property. Product liability insurance might be the way to go.
Answer Applies to: California
Ashman Law Office | Glen Edward Ashman
Part of your post would likely be considered bankruptcy fraud (paying yourself ahead of a judgment creditor). It also would be unusual for an LLC to bother to file, instead of just closing. It sounds like you are trying to proceed pro se, and you cannot. Corporations are required by law to have a lawyer to file.
Answer Applies to: Georgia