As a business owner facing bankruptcy, you may be worried about losing your home, cash, and other personal property. While you may have some options, they largely depend on the structure of your business, how much debt you have, the assets you want to protect, and whether or not you wish to keep your business running. Read on to learn more about the implications of the two types of bankruptcy.
Chapter 7 Bankruptcy
Both individuals and businesses can file for Chapter 7 bankruptcy. A business owner can file on business debt or personal debt unless you are a sole proprietor. In that case, one filing applies to both kinds of debt. Businesses rarely file for a Chapter 7 bankruptcy because it doesn’t erase any debt, so if you signed a personal guarantee for what the company owes, you could lose your personal property. If you have to go that route, you may be better off to sell the assets and pay the proceeds toward the debt yourself. Business owners can usually get a better price for the property than creditors will. However, a business owner may still choose to file an individual bankruptcy because it takes away personal responsibility for business debt.
In a Chapter 7 bankruptcy, the trustee sells off any nonexempt property to pay the debts. This process usually closes the business because the inventory and equipment get sold. However, some kinds of companies can continue to operate after a bankruptcy. For example, if you run a service business such as accounting or writing that doesn’t require much inventory or equipment to operate, you may be able to continue. The trustee can’t sell your ability to provide that service.
Chapter 13 Bankruptcy
While a business other than a sole proprietorship cannot file for Chapter 13 bankruptcy, the owner of a company may file individually to reorganize both business and personal debt. In Chapter 13 bankruptcy, you can keep some or all of your assets if you agree to a payment plan to make good on the debt within five years. This agreement lets you protect your personal property, such as your home or car, and keep your business running during this reorganization. Sometimes business owners file a Chapter 13 bankruptcy to wipe out personal liability for business debt through reorganization.
Bankruptcy of any kind is a complicated process that evokes strong emotions. It’s easy to make mistakes if you try to navigate the process alone. Contact a knowledgeable chapter 13 bankruptcy lawyer in your area to help you take this step.