Nowadays, many businesses are struggling to keep the doors open because of the economic conditions we are seeing in America. Many small business owners have taken money out of their homes, borrowed from their families, and run their credit cards up to the roof. When small business owners struggle like this they wonder if filing for bankruptcy on the business might eliminate all of the never ending stress of trying to keep the doors open. If the individual is a sole proprietor they can't just file bankruptcy without including all of their personal debt and assets. Depending on their personal financial situation, this might not be a bad thing at all. Wiping out all the debt that the business personally costs you, might be the relief the debtor needs. Filing Chapter 7 bankruptcy might give the debtor the fresh start that bankruptcy was created for. After getting the bankruptcy discharge, all of the debtor's debts, including personal and business will be discharged and wiped out.
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If the business is a corporation or an LLC, these are separate entities and a bankruptcy filing will not involve any property the individual owns. The individual also will not be able to include any of their personal debts when filing bankruptcy on the business. So that leaves the question, who should file bankruptcy? First of all, you probably wouldn't be reading this if your business was doing great. Over the last couple of years, the economy has crushed many small businesses and even a few large ones. Because of the downturn there are some once thriving businesses now considering filing for bankruptcy.
If you have an LLC there are a few things you can do. First of all, you could just close the doors and shut it down. Depending on the state, the business will usually be considered inactive and eventually the entity will be considered abandoned. The next or the right way to close it is, notify the state that you are dissolving the entity and sell all the assets to pay the creditors with a prorated share of the proceeds of the sale. And lastly, you can file for bankruptcy on the LLC. The bankruptcy court will appoint a trustee that will be in charge of selling the business assets and divvying up the proceeds to the creditors.
Being in this situation is stressful and the business owner should definitely consult a bankruptcy attorney to have them shed some light on the pros and cons. Which solution is best? That question can only be answered by what you're intending to do in the future. There is an old theory about burning bridges with people you might have to deal with in the future. If you are going to be hovering around in the same industry either as an employee or forming a new business it's probably not a good idea to just walk away and hide. In this situation, it's best to dissolve the entity by either selling the assets and distributing the funds or by filing bankruptcy. When it comes to dissolving the corporation or filing bankruptcy, a bankruptcy attorney is definitely a huge asset.
If your business is a sole proprietorship, filing for bankruptcy is probably the best option. There are a couple of different chapters that can be discussed with your bankruptcy attorney to give the debtor the best results. If you're not considering keeping the business open than Chapter 7 bankruptcy will eliminate all the liability that the business might have caused you personally. On the other hand, if there's property that needs to be protected and you can afford a court-ordered payment plan, then it would be Chapter 13 bankruptcy might allow you to add on to your home and pay back a portion of the debts.
Deciding to shut down a business can be pretty complex and shouldn't be done without consulting a bankruptcy attorney first. An experienced attorney will be an asset making sure all the I.'s are dotted and T.'s are crossed so you have no liability from the creditors in the future.
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