Bankruptcy for Small Business Owners
Chapter 7
You can file a Chapter 7 bankruptcy for both yourself or a legal business entity. If you’re the sole proprietor of your business, your personal bankruptcy will apply to your business debt. In this situation, you can protect business assets using exemptions. Thus, you can stay in business so long as all of your essential business assets are exempted. Be mindful that nonexempt business assets can be liquidated if you file a Chapter 7 as a sole proprietor of your business.
If your business is a corporation or LLC, then your personal bankruptcy will not discharge business debt. This is because your business is its own legal entity. Your business can file a Chapter 7, which essentially closes it down and liquidates its assets to pay creditors.
Chapter 13
A legal business entity cannot file a Chapter 13. However, like a Chapter 7, a sole proprietor can include business debt in a Chapter 13. Filing a Chapter 13 can actually be preferable if essential business assets are nonexempt, which would make them subject to liquidation in a Chapter 7. Nonexempt business assets can be included in a Chapter 13 payment plan, allowing the debtors to keep their assets and stay in business as long as they stay current on their plan.
If you’re a small business owner looking for a Fairfield bankruptcy attorney, feel free to contact our office for a free consultation.