Yes, filing for personal bankruptcy does not require you to close or lose your business. Self-employed individuals can seek personal bankruptcy protection and retain their livelihood. If your business is a corporation, limited liability company or a sole proprietorship you can protect the business with the proper strategy.
If you seek personal protection under Chapter 7 liquidation, you must otherwise qualify for Chapter 7 and you should make certain that any business assets are protected before you seek relief. Business assets are exposed to liquidation if the value of these assets is greater than your exemptions. Exemptions are defined amounts of certain assets protected under the law. This includes business equipment, tools, bank accounts, accounts receivable and inventory. This applies even if your business is a corporation or a limited liability company.
Your business can file on its own for Chapter 7 liquidation if it is a corporation or a limited liability company, but this will liquidate and close the business. You would only use a Chapter 7 liquidation for an entity that is no longer viable as an ongoing business or a closed venture.
In a personal reorganization under Chapter 13, your business continues to operate as usual and there is no liquidation of any business or personal assets. Your business income and expenses are important to determine a feasible plan of reorganization. Some debts owed by a business entity may not be reduced or eliminated if the debts are owed by a corporation or limited liability company.
If your business is a corporation or a limited liability company, it is a separate legal entity that would not be shielded by a personal Chapter 13 reorganization and there will some limitations on protections from business creditors. In an individual reorganization, your business must continue to pay its taxes, suppliers and secured creditors in order to sustain the venture. It might be necessary to consider a separate bankruptcy case for your business if it owes debts separate from the owner.
Limited Liability Company
A corporation or limited liability company can file for bankruptcy without you as an ongoing venture under Chapter 11 of the Bankruptcy Code. Most small businesses will qualify for Subchapter V of Chapter 11 which allows for a more streamlined version of Chapter 11 and reduced costs. If your business files for bankruptcy and you guaranteed debts owed by the business, any unpaid amounts will remain your personal debts even after a successful business reorganization. It is very common for individuals to file personal bankruptcy cases as well as business case to avoid this consequence.
It is important that you keep appropriate books and records for the business under any strategy. There may be some limitations to debt forgiveness in personal bankruptcy for business debts. Speak with a local, experienced attorney to determine a path for a successful case.
Please remember that these are basic answers to common questions and not legal advice. We can discuss your situation in detail during a free, confidential consultation with an attorney. Contact us today at www.meredithlawfirm.com to schedule an appointment at your convenience. We are a debt relief agency.