If you are in a bad financial position and are considering using Chapter 7 bankruptcy to help you out, you may want to visit a bankruptcy attorney before you make any decisions if you are the owner of a small business. Depending on the type of business you have, you may end up forfeiting everything your business owns by filing for Chapter 7. What will happen to your assets will depend on the type of business structure you have for your small business and on the worth of the business.
Types of business structures
For a business that is a sole proprietorship or partnership, the bankruptcy trustee handling the case has the right to do the following things:
- Force you to stop operating the business
- Seize any assets the business owns
Sole proprietorships and partnerships are often intertwined with an individual's personal assets and finances. These types of business structures do not offer liability protection from your personal assets, and therefore they will not protect your business if you file for Chapter 7 personally.
The benefit of this is that if you file a personal bankruptcy, you can include your personal debts and debts your business owes. The downside is that you might have to start all over again with a new business after you file.
A limited liability company (LLC) and a corporation are two business structures that offer liability protection. This means that if your business is one of these two types, you might not lose any of the assets your business owns when you file for bankruptcy. This is because the business is an actual entity. You do not own the assets, but the business actually owns them.
There is a chance that the trustee might go after your share of the business, though, if you operate either of these types of businesses. In this situation, you may end up losing your business assets.
The worth of the business
The second factor that affects the outcome of a bankruptcy case for a small business owner is the value of the business. If you operate a business that really does not have any assets, the trustee may decide to let you continue operating it. If you have a business that has assets and a net worth, the trustee could decide to seize the business and its assets from you.
If you own a small business, it's important to thoroughly discuss your case with an experienced bankruptcy lawyer before you decide to file. By doing this, you can determine whether this will be a good idea or not.