Can I Keep My Business While Filing for Personal Bankruptcy?
Making the decision to file for bankruptcy can be difficult for anyone. But when you have a business, you want to make sure that your personal financial issues do not interfere with its operation. Sometimes, these owners may forgo filing bankruptcy to protect the ownership of the business.
So, can I keep my business while filing for personal bankruptcy?
At Belsky & Horowitz, LLC, we want to provide as much information as possible to help you make the right decision for your situation. Let’s examine how personal bankruptcy affects business ownership.
Chapter 7 Bankruptcy
If you cannot repay your debt, then you might elect for a Chapter 7 bankruptcy. In these cases, a bankruptcy trustee is appointed to assess your assets. They will determine which ones will be liquidated to pay off creditors.
In these cases, business structure will play an important role. If you have a sole proprietorship, those assets are considered personal assets. So, if you file for Chapter 7, the trustee could liquidate those assets to satisfy your debts.
However, you may retain certain exempt assets under Maryland law, such as tools of the trade, limited amounts of equipment, and some cash or accounts receivable.
However, there are different rules for an LLC or a corporation. The corporation will be treated as a separate legal entity in most situations. With that, only your personal assets will be used to pay off debt. Under these circumstances, you may retain ownership of your corporation, but the business might face challenges if you have combined your personal and company liabilities together.
Chapter 13 Bankruptcy
If you want to repay your debt, you can reorganize it with a Chapter 13 filing. In these cases, you can establish a repayment plan to repay debts over three to five years. Unlike Chapter 7, you will not have to worry about liquidating assets.
With this filing, you can keep your business. As you go through the process, you must propose a repayment plan that details how you intend to pay your debts while continuing to operate your business. You need to show that you can still generate income to support your repayment obligations and the operational needs of your business.
The trustee will evaluate your income, expenses, and financial situation during this time. If you can establish that your business generates enough revenue to cover your repayment plan, you are more likely to retain ownership of your business.
What Could Affect Your Business Retention?
Sometimes, there are no straight answers when it comes to business ownership and bankruptcy. There are many factors that can influence your ability to hold onto your business.
As previously mentioned, the structure of your business plays a major role. Sole proprietorships face more scrutiny regarding asset liquidation than corporations.
Additionally, the value of your business assets can impact your bankruptcy outcome. If these assets are not considered non-exempt and exceed the exemption limits, the trustee may liquidate them to repay creditors.
The type of debt also matters. If you have personally guaranteed business loans or incurred debts intertwined with personal finances, your bankruptcy filing may jeopardize your business assets.
Additionally, the potential for your business to remain viable post-bankruptcy is essential. If you can demonstrate that your business is profitable, this can weigh in your favor during the bankruptcy process.
How to Protect Your Business
If you are considering filing for personal bankruptcy but are concerned about retaining your business, you need a bankruptcy lawyer.
There are implications of both filings. If you choose the wrong one for your situation, it could risk the ownership of your business. With their help, they can also assist with assessing your assets and creating a solid repayment plan. You will need that to prove to the court that your business is viable, which goes a long way to keep ownership of the venture.
For those considering bankruptcy, make sure to have clear and accurate records showing a separation of your personal and business liabilities.
Often, people can lose their businesses because they mix these finances. When you have concise documentation of your personal and business assets and debts, it makes it easier for the court to allow you to keep your business.
While filing for personal bankruptcy does not automatically mean losing your business, you still need to make the correct choice for your situation. Many times, retaining ownership requires you to have the proper structure of your business and show your ability to demonstrate financial viability.
While Chapter 7 has many challenges for business owners, Chapter 13 offers a better avenue for retaining ownership. If you are looking to navigate these challenging times, reach out to a Maryland bankruptcy lawyer. They can help you get the answers to questions and assist with preserving ownership of your business.
By understanding your options and taking a few proactive steps, you can emerge from bankruptcy with your business intact.
