Are LLCs Bulletproof? Business Bankruptcy Explained!

Today, we are tackling the common misconception that a limited liability company (LLC) protects you and your business from creditors, especially concerning bankruptcy and your business and personal assets.

Updated February 19, 2025.

Limited Liability Company (LLC) and Bankruptcy

Starting a business can be an exciting venture, but it often comes with its fair share of challenges and a learning curve while you try to learn on the go what works and what doesn’t.  

One of the challenges is figuring out how to classify your business, whether for tax purposes or liability issues. The Limited Liability Company (LLC) offers many benefits such as flexibility, tax advantages, and limited liability protection for its owners. However, even with these advantages, business owners might find themselves in a position where they are still personally liable for the debts of the business.

• Understanding Bankruptcy and the Assets of a Business Owner

The general belief is that an LLC shields you completely from personal liability, but that’s not always true. It’s my experience that this belief starts with accountants and certified public accountants (CPAs) who advise their clients as such.

This YouTube video will discuss these issues and explain why an LLC won’t protect you as much as you think.

Myth Versus Reality

A limited liability company (LLC) does not provide the full protection you might think, especially if you close your business and file for bankruptcy.

While LLCs offer some protection, they don’t make you invincible. This depends on the loan terms, which typically make it clear that you are personally liable for debt, even if the business closes. This could result in a personal bankruptcy having to be filed, in addition to a business bankruptcy.

This video also summarizes which bankruptcy should be filed for your business and discusses protecting yourself from personal liability.

There’s no one-size-fits-all answer. Consult a lawyer to determine the best course of action for your situation. I hope this clarifies LLCs and bankruptcy.

Best of luck to you and your business.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

Need to look for prior blog posts or other categories? Click the links below or use the search feature at the top of the page:

• Bankruptcy
• Insights & Analysis

Please note the information on this site does not constitute legal advice and should be considered for informational purposes only.