Although owning a small business has many benefits, there are also many risks as well. Simply put, employees of major firms or government agencies have a much higher level of job security than small business owners. Sometimes small business owners find themselves giving up their personal finances for the requirements of the company, investing an increasing amount of their resources there instead, or taking home such meager salaries that they must incur debt to meet their basic demands.
Does this sound familiar? You might be worried about how the business you’ve worked so hard to develop would be impacted if you have to file for personal bankruptcy due to severe debt. The kind of business you are incorporated under and the sort of bankruptcy you choose to file will both have an impact on how your bankruptcy is seen. Read on to learn more and then contact The Law Offices of Paul Y. Lee at 951-755-1000 for help.
If your company is a sole proprietorship, the law actually views your personal and corporate assets as belonging to the same entity. This means that, in effect, your personal bankruptcy will also result in the bankruptcy of your small firm.
Your company’s assets will probably be liquidated as part of your bankruptcy if you file for Chapter 7 bankruptcy. However, you might be able to maintain your assets or use any exclusions to your advantage. Because the bankruptcy trustee won’t permit you to incur any new obligations while the bankruptcy process is ongoing, you frequently wind up having to stop operating your business under Chapter 7 bankruptcy.
If you want to keep your firm open, consider filing Chapter 13 bankruptcy. Although it gives you more options for what property you can keep for your business and personal use than Chapter 7 does, it does not discharge all of your unsecured debts.
You are in a similar scenario to having a sole proprietorship if you jointly own a business with one or more co-owners in a general partnership since you are personally accountable for business debts and those debts will be included in your personal bankruptcy.
However, if you file Chapter 7, no exemptions will be available for commercial property owned in a general partnership. If your partner cannot buy your portion of the company, it will probably have to shut down. A Chapter 13 filing might allow the company to continue operating.
Your company is regarded as a separate entity and shouldn’t be impacted by your personal bankruptcy if you have incorporated it as a corporation or a limited liability partnership. The only exception would be any personal loans you obtained in your own name and applied to the company. You are liable for these loans, and your bankruptcy will include them.
We can help if you are facing these issues
Please get in touch with The Law Offices of Paul Y. Lee right away if you want to understand more about your choices as a small business owner considering bankruptcy. You can call us at 951-755-1000 for a consultation.