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Business Formation Guide
protectionUpdated 2026-03-31

Can an LLC File Bankruptcy in Texas?

Yes, a Texas LLC can file bankruptcy. An LLC is a separate legal entity under Tex. Bus. Org. Code § 101.001 et seq. and has independent capacity to initiate bankruptcy proceedings in federal court under the U.S. Bankruptcy Code (11 U.S.C.). The LLC files directly in U.S. Bankruptcy Court; the filing is independent of whether members file personally.

How It Works

A Texas LLC may file Chapter 7 (liquidation) or Chapter 11 (reorganization) bankruptcy depending on its financial circumstances. Federal bankruptcy law governs the process—not Texas state law. The LLC's operating agreement, governed by Tex. Bus. Org. Code § 101.052, does not override federal bankruptcy requirements.

Member Liability Protection

Texas LLCs provide limited liability protection under Tex. Bus. Org. Code § 101.001. If the LLC files bankruptcy, members are generally not personally liable for the LLC's debts unless they personally guaranteed obligations or pierced the corporate veil occurred. Members' personal assets remain protected, but their capital contributions and ownership interests may be lost.

Charging Order Protection

Texas provides charging order protection under Tex. Bus. Org. Code § 101.112. Even if the LLC faces financial distress, creditors of individual members cannot seize LLC assets directly—they may only obtain a charging order against the member's distributions. This protection applies regardless of the LLC's bankruptcy status.

Operating Agreement Considerations

A written operating agreement (Tex. Bus. Org. Code § 101.052) should address insolvency scenarios, creditor rights, and member obligations. While not legally required, an agreement clarifies decision-making authority and member roles during financial distress. Default rules under Chapter 101 apply if no agreement exists.

Next Steps

  1. Consult a bankruptcy attorney — Determine whether Chapter 7 or Chapter 11 is appropriate for your LLC.

  2. Review your operating agreement — Identify provisions affecting creditor claims or member contributions.

  3. Gather financial records — Prepare balance sheets, tax returns, and creditor lists.

  4. File the petition — The LLC files directly in the appropriate U.S. Bankruptcy Court district.

  5. Notify creditors and members — The bankruptcy trustee manages notice and claims procedures.

This is general information, not legal advice. Consult a bankruptcy attorney licensed in Texas for your specific situation.