Filing for bankruptcy by an individual involves several aspects. When it comes to business’ filing for bankruptcy, things get much more complicated. Small business can be either sole proprietorship, limited liability companies (LLC) or corporations. As per Dallas based bankruptcy law firm https://www.recoverylawgroup.com/, when a sole proprietor of business files for personal bankruptcy, there isn’t much legal distinction available between the business and the owner. Any assets that a sole proprietor has are considered those of the owner and thus they end up becoming a part of the bankruptcy estate.
However, if the business is an LLC or corporations, the two have a separate identity from the owner. This means that the debts of the owner are not the debts of the company and vice versa. Similarly, the assets of the business are not assets of the owner. But things are different when you file for bankruptcy. While filing for personal bankruptcy, the debts of an individual and the business are kept separate, but the assets of the business are considered assets of the owner. Safety of these assets depends on whether you choose to file for Chapter 7 bankruptcy or Chapter 13. If the business involves no assets, then there is no issue. However, if that is not the case, things get a bit complicated.
When an LLC owner files for personal bankruptcy under Chapter 7 where liquidation of assets takes place, then any asset associated with your business can be sold off to pay your creditors. Despite exemptions being available, all assets become a part of the bankruptcy estate and those which cannot be exempted are liquidated. However, if the LLC is a multi-member LLC, taking any company asset becomes difficult for the bankruptcy trustee. Thus, your assets can be protected in Chapter 7 bankruptcy if your LLC is a multi-member one. Yet, the best way to protect assets is by filing for Chapter 13 bankruptcy.
In chapter 13 bankruptcy, reorganization of debt takes place. You are expected to make payments over a period of 3-5 years to the bankruptcy trustee. This payment is calculated based on your disposable income. When you file for Chapter 13 bankruptcy, whatever type of small business you have (sole proprietorship, corporation, LLC or multi-member LLC) will remain unaffected by your personal bankruptcy. The only thing of concern will be the income generated through your business which will help in the calculation of your disposable income.
If you are a small business owner, struggling with finances and contemplating bankruptcy, it is ideal that you consult with experienced bankruptcy lawyers regarding your case. If you haven’t contact one, you can speak with skilled attorneys at 888-297-6023.