Can I File Personal Bankruptcy and Keep My Business?
If you're filing a personal bankruptcy, Chapter 7 or Chapter 13 , and you own a business, your business can survive.
Here's what you need to know:
- Depending on the type of business you have, (sole proprietorship, LLC, corporation etc.) your business creditors might be separate from your personal creditors. This is usually the case when you have an LLC or corporation unless you personally guaranteed some business debts. The type of business you have greatly impacts how your business is handled in bankruptcy.
- In the case of a sole proprietorship your personal and business assets and liabilities may be mixed, which means that your personal and business creditors may be the same. In that case, creditors in your personal bankruptcy may be able to take property which is attached to a secured loan. For example, if you're a taxi driver who took out a personal loan to buy your taxi but failed to pay and are unable to pay in bankruptcy, you may need to surrender your taxi to the creditor. If you want to continue to run your business in a scenario like this, you could negotiate with creditors so that you could keep the business asset.
- If you have an LLC or corporation and have carefully made sure that your business and personal finances are not mixed, then you may be able to avoid a scenario where personal creditors seize business assets in your bankruptcy case. However, if it is determined that you have a valuable interest in your business, the creditors might attempt to demand that you liquidate your interest in the business and pay them from the proceeds. For example, if you have an LLC in which you own 23 percent of the stock, the creditors and bankruptcy trustee may attempt to liquidate that 23 percent to pay creditors. If you want to continue to operate your business, work with your bankruptcy attorney to create an effective bankruptcy strategy.