Personal Injury Lawyer
Owning a business can be hard at times. Technological advances, economic slowdowns, the political climate, or changing demographics can all spell problems for a company. As a business owner, how can you avoid personal bankruptcy when your business is in trouble? There are different options for discharge or reorganization of business debts, but it depends on how your company was structured as to whether you can separate your personal and business debts.
Types of Bankruptcy
Depending on whether you want to continue to run your business or dissolve it and the total assets and debt you have, you may have the option of either filing Chapter 7 or Chapter 13 bankruptcy.
In Chapter 7 bankruptcy, the court discharges all your debt. Both individuals and businesses can file. As a sole proprietor, both your personal and business obligations will be affected by the filing. If an individual files on behalf of the company, no debts will be erased, so many people choose to file personal bankruptcy, as that will protect them from having to pay the business debts.
This option is a good one for individuals who struggle each month to have enough money to pay for their obligations. It is not very costly to file, and it should be completed in four to six months. However, it does affect your personal credit. Also, unless you have a service-oriented business with few assets, you may or may not be able to continue the business, depending on whether or not the equipment can be protected from the bankruptcy.
The types of businesses that can file for Chapter 7 protection are:
- Limited Liability Partnership
The difference between Chapter 7 for individuals and companies is that companies do not receive a full discharge of debt. If you signed a personal guarantee of debt for your partnership, corporation, or LLC, you would have to file personal bankruptcy to discharge the debt. Also, unlike Chapter 7 for individuals, there are no exemptions allowed, so all the assets will be sold, and the business will be closed.
Chapter 13 is a reorganization of debt. It is not available to businesses. If you are a sole proprietor, you have the option to file for Chapter 13 reorganization protection to allow you to restructure your debt in a way that will enable you to live and continue your business while repaying your creditors. You may be able to reduce loans, catch up on mortgage or car payments, and repay tax debt.
For more information on the types of bankruptcy and how you can protect your personal assets from business bankruptcy, contact an experienced bankruptcy lawyer, like a bankruptcy lawyer in Memphis, TN.
Thanks to Darrell Castle and Associates, PLLC, for their insight into how to avoid personal bankruptcy when you own a business.