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Property held by LLC, but personal guarantee on the loan made by member. Is the property part of member's BK estate?

Los Angeles, CA |

When a member of an LLC has made a personal guarantee for a mortgage on a property that is vested in the name of the LLC, and that member later files for personal bankruptcy, is the real property secured by the mortgage part of the member's bankruptcy estate? The mortgage holder foreclosed on the property, and now the member wants to know if the property should have been protected by the automaic stay.

Attorney Answers 3


It depends on the terms of the llc operating agreement.

the llc is the owner of the real property, not the member in bk. the member has only rights given to him under the llc operating agreement. That may or may not give him an interest in the real property itself.

The fact that the member made a personal guarantee on the loan just bound him to the loan and gives the mortgage holder a way to go after the member outside of the llc protection. However, if the member is in bk, the mortgage holder is stayed.

Bottom line, go back and go through the operating agreement to see who holds what rights.

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My research reveals that the courts have sometimes allowed the stay to cover these types of interests when they are not mere "legal interests", but can rather be found as "equitable interests". See In Re Ealy, 307 B.R. 653. In such a case, the courts will look to state law to see if there is such an interest held by the member. Often the question turns on whether there is actual equity in the property. If there is not, can I argue that the business (which DOES have value) that was being run in the property, and would be impaired by the foreclosure action, is the equitable interest and cannot be divided from the property itself?

Richard Alan Rodgers

Richard Alan Rodgers


The BK debtor's membership interests in the LLC are part of the BK estate, and to the extent that the foreclosure affects the equitable value of the BK estate, this may be a good argument, but it seems like a moot point since the foreclosure has already occured. All you would have left is an adversary complaint for sanctions for violating the AS. You need to discuss this with a bankruptcy attorney


I agree with Attorney Tran, the BK debtor has no personal ownership interests in the property so that the automatic stay is not applicable. The BK debtor should have included his/her personal loan guaranty as a dischargeable debt.

Richard A. Rodgers, Esq.
(805) 230-2525
200 N. Westlake Blvd. Ste 201
Westlake Village, CA 91362

As stated in the AVVO.COM Terms and Conditions of Use, this answer is not intended as legal advice, and no attorney-client relationship or privilige is created by this response.

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The member's membership interest is part of the bankruptcy estate. However, as Attorney Rodgers indicated, the debtor himself or herself has no personal ownership interest in the property. Therefore, the automatic stay is not applicable.

Frank W. Chen is licensed to practice law in the State of California. The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, consult your own attorney.

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