Bankruptcy Appellate Panel held that the discharge of a company in a Chapter 11, Subchapter V case did not release the person who owned the LLC from the same debt. Essentially, the owner (the only member of the LLC) was a co-debtor, and co-debtors do not receive the benefit of the bankruptcy debtor’s discharge. 11 USC Sec. 524 (e).
As a result, state-court litigation against the LLC owner by a creditor could continue for that same debt, because under the applicable state law (Delaware), “alter ego” liability was derivative. The owner was liable derivatively; the allegation in the complaint was not that the owner and the company were the same entity. The state court litigation did not violate the discharge injunction of 11 USC Sec. 524 (a).
In re RS Air (BAP No. NC-23-1008-FSG), filed June 2, 2023.
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