Can a Creditor Collect if an LLC Is Dissolved?

Dissolving your LLC can prevent creditors from collecting.
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A limited liability company is a company that limits the personal liability of shareholders for their company's debts. If your LLC is dissolved, creditors can't generally attempt to collect from you, and can collect from the company only if it has any assets remaining. However, if you dissolve the LLC specifically to avoid creditors, a creditor may still be able to collect.


Company Dissolution Basics

LLCs are governed by state laws, which vary slightly. Generally, you'll need to file a notice of dissolution with your state and may need to advertise that you're dissolving your LLC. This gives creditors who believe you owe them money a chance to contact you prior to dissolution. In some states, you won't be permitted to dissolve your corporation until you've made plans for dealing with your outstanding debts.

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Charging Order

Creditors who claim that you owe them a debt can get something called a charging order. This order is issued by a judge, and orders an LLC to pay a debt prior to disbursing the LLC's funds or property to its owners. However, this charging order doesn't give the creditor the ability to direct how the LLC uses its funds, which means creditors can still end up empty-handed.


Personal Liability

LLCs offer protection from personal liability for most corporate debts, but in some cases you may still be personally liable. If a creditor can prove that an LLC is little more than your alter ego or that you didn't properly dissolve the corporation, it may be able to sue you personally. If there was fraud in your transaction with a creditor or you attempted to hide assets, you could also be sued.



Suing Dissolved LLCs

Dissolved LLCs have historically not been treated as entities that could be sued. However, the Washington Supreme Court recently ruled that dissolved LLCs could be sued for up to three years after their dissolution, and there are similar lawsuits pending in other states. If other states rule the way Washington did, this could open LLCs up to litigation even after they've been dissolved. This doesn't necessarily mean that a creditor can collect, though. If an LLC has no assets and you're not personally liable for your company's debts, a judgment against your LLC is useless.



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