## Facts

- An individual debtor filed bankruptcy in Colorado and later converted the case to Chapter 7.
- At all relevant times, the debtor was the sole member and manager of a Colorado limited liability company (LLC) that owned real property.
- The LLC itself was not a bankruptcy debtor.
- The Chapter 7 trustee moved for authority to take actions necessary to liquidate the LLC’s real property and sought approval to employ a real estate broker.
- The debtor objected, asserting the trustee could receive only economic rights in the LLC (similar to a charging order against distributions) and lacked management power to force a sale of LLC assets.
- The court heard argument and decided the matter on briefing.

## Issues

1. Whether the debtor’s bankruptcy estate included the full membership interest in a single-member LLC, including management and governance rights, under 11 U.S.C. § 541.
2. Whether Colorado’s LLC charging-order provisions limited the Chapter 7 trustee to economic rights only, preventing the trustee from controlling the LLC and liquidating its property.
3. Whether an operating agreement’s “non-profit” characterization eliminated value in the membership interest by limiting distributions to “profits.”

## Decision

- The court granted the trustee’s motion authorizing the trustee to take necessary actions to liquidate property owned by the single-member LLC.
- The court held the debtor’s entire membership interest—economic and management rights—became property of the estate under § 541.
- The trustee succeeded to all of the debtor’s rights in the LLC and could control the LLC’s management, cause a sale of its real property, and realize value for the estate.
- The court rejected the debtor’s argument that the trustee was restricted to charging-order-type relief.
- The court rejected the debtor’s “non-profit” argument, concluding the membership interest retained value because distribution rights include assets, not only profits.

## Legal Principles

- Under 11 U.S.C. § 541, a debtor’s property interests at filing transfer to the bankruptcy estate, including a debtor’s full interest in a single-member LLC as defined by state law.
- Where state LLC law conditions transferee governance rights on consent of “other members,” that limitation does not restrict estate succession in a single-member LLC because there are no non-debtor members whose consent or interests require protection.
- Charging order remedies are designed primarily to protect non-debtor members from involuntary governance intrusion; in a single-member LLC, that rationale does not justify limiting a bankruptcy trustee to economic rights only.
- A membership interest’s value is not confined to “profit” distributions; it includes rights to receive distributions of LLC assets, including upon liquidation.

## Conclusion

The bankruptcy court held that, in a single-member Colorado LLC, the Chapter 7 trustee succeeded to the debtor’s entire membership interest, including governance rights, and could therefore control the LLC and liquidate its real property for the benefit of the bankruptcy estate notwithstanding charging-order arguments or a “non-profit” operating agreement label.


In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003)