A limited liability company (LLC) is a business entity that is separate from any individual member (owner) of the LLC. For bankruptcy purposes, a debtor's interest in an LLC has some sort of value, usually the debtor's share of any equity remaining after subtracting the liabilities or debts of the LLC from its assets or property. Under Colorado law, unlike the tools of trade for a sole proprietorship, a debtor cannot exempt, or protect from the bankruptcy estate and creditors, any interest in an LLC.

The question in an individual debtor's chapter 7 case is whether it's worth it for a bankruptcy trustee to “step into the shoes” of the debtor and to use, sell or lease the debtor's nonexempt interest to make money for payment to unsecured creditors. If the debtor's equity has negative value or if the interest is not marketable, the trustee will abandon the LLC interest, and the debtor will be allowed to keep it after the bankruptcy case is closed.

Depending upon one's circumstances, a chapter 13 repayment plan (or in some cases, a chapter 11 reorganization) may be used to protect an LLC interest by paying unsecured creditors the value that would have been received in a chapter 7 liquidation.

With what's at stake when a business is involved, consulting with an experienced bankruptcy attorney licensed to practice in your state may be a good idea.