As a business owner, you probably want to consider many other options before filing for bankruptcy. However, when the situation leaves you with no alternatives, you have to face the need to take this route. Bankruptcy law is complicated, but it offers several possibilities for business owners who are going through difficult times. The law office of Andrew S. Bisom has the knowledge and expertise to guide you through what is surely a difficult route for any business owner to embark upon.
Liability for Business Debts
You may be wondering what happens to the debt that your business has accumulated and whether you would be personally responsible for repaying those funds. If you are set up as a sole proprietorship, this is not a legally separate entity, so you and the business are considered the same. In this case, you would be liable for the debts originated by the business, and thus your creditors may go after your personal assets.
In cases of limited liability companies or S-corps, you may be liable for some debts, particularly those that you personally guaranteed. If your bankruptcy attorney recommends you file for Chapter 11 bankruptcy, owners of LLCs or S-corps would be off the hook for paying off any debts that the business acquired without a personal guarantee.
Three Main Types of Bankruptcy
When it comes to filing for bankruptcy, there are three main types—or chapters—in the U.S. Bankruptcy Code. They are:
Chapter 7 – Also known as liquidation, this type of bankruptcy is applied to businesses where no viable option to remain open is possible. It can be used for sole proprietorships, corporations, or partnerships.
Chapter 11 – If you feel that your business can be turned around or reorganized, this option is for you. Through Chapter 11, a court-appointed trustee supervises the continued operation of the business.
Chapter 13 – This option works best for individuals or sole proprietorships when the main objective of filing for bankruptcy is to have the opportunity to reorganize and not to liquidate. The court must receive a plan as to how you are planning on reorganizing your debts. Keep in mind that corporations and LLCs are not eligible to file under Chapter 13.