Q: When does corporate bankruptcy for a single member LLC risk personal bankruptcy or liability for the owner/member?

A: When a single-member LLC faces bankruptcy, the owner’s personal liability typically remains protected under the "corporate veil," meaning personal assets are shielded from business debts. However, this protection can be compromised, or "pierced," if certain conditions are met. In California, piercing the veil often happens if there is evidence of fraud, commingling personal and business finances, undercapitalization, or if the LLC is not treated as a separate entity.

For a creditor like Bank of America to attempt to pierce the veil and hold you personally liable, there would need to be substantial evidence of wrongdoing or a failure to follow corporate formalities. Specific purchases or personal guarantees related to the debt could make you more vulnerable if they demonstrate that the LLC and personal finances are not distinct. However, without such factors, it is less common for a creditor to successfully argue that the corporate veil should be pierced for an amount like $20,000.

Creditors generally consider the cost and likelihood of success before pursuing actions like forcing personal bankruptcy. It is relatively rare for them to do so for "lower" amounts, such as $20,000, unless there are aggravating circumstances. Still, it's crucial to review your LLC’s operations and financial transactions carefully to ensure they adhere to the formalities that maintain the liability protection you have as an LLC owner.