If you are a small business owner, it is likely that your personal finances are closely tied to your business’s finances. You have devoted your time, energy and money in the entity, so you are fully vested in it. As a result, when your company begins to struggle, you have financial troubles too. While every situation is unique and you should confer with an experienced Chapter 7 or Chapter 13 attorney to discuss your individual situation, this blog will provide general guidance for small business owners who are considering filing a personal bankruptcy.
When you file a bankruptcy case, it is important to understand whether or not your business is a separate legal entity. A sole proprietorship is a business that is treated the same as the individual and all of its debts may be included in your bankruptcy. If your entity is a limited liability company, corporation, or other form of separate legal structure, the business debts cannot be included in your personal bankruptcy. However, personal debts related to the business can. Common examples of personal debt that is related to a business includes:
- Personal guarantees of loans obtained by the business
- Debts incurred on personal credit cards for the benefit of the business
- Loans from retirement accounts to fund the business
The above types of debt can be significant and obtaining a discharge of these types of debts can greatly benefit you personally.
It is important to understand that all of your debt must be included in your personal bankruptcy filing. Thus, not only will you eliminate the debt you incurred in relation to your business, but you will also eliminate personal debts such as medical debt and credit card bills.
Many small business owners are concerned with how their Chapter 7 or Chapter 13 filing will impact their company. If the business is a separate legal entity, it does not have to file for bankruptcy relief when you do. However, your ownership interest in the business will be considered an asset of your bankruptcy estate and must be disclosed to the court. In most cases, the trustee has no interest in the assets of the business and your company will continue to operate, unaffected by your personal bankruptcy filing.
A small business owner should confer with legal counsel before filing a personal bankruptcy case to verify the filing will not impact the business operations as well as to understand what debts will be discharged
The personal bankruptcy process can be simple and effortless if you retain an attorney who will explain the steps to you. Ms. Anderson is dedicated to walking you through each step, explaining the process along the way. At The Law Office of Diane Anderson, we are determined to help our clients obtain the best results possible.