Ron Lundquist: Business Bankruptcy
A business may fail financially for many reasons, and some of those are beyond an owner’s control. The reality of entrepreneurship is that not every business succeeds. But when a business fails and the debts start piling up, what do you do?
If you’ve set your business up as an LLC or corporation, your personal finances and assets most likely will not be at risk. However, many small businesses operate as sole proprietorships or partnerships, and that can open you up to being entangled in the debt yourself. No matter how your business is organized, if the finances between your business and yourself have not been separated clearly or you have put up personal collateral for business loans, you are at risk.
If you are unclear about the risk to your personal finances or how your business debt could affect you, seek out a consultation from a business bankruptcy lawyer.
Depending on your level of personal risk, it may be possible to simply close the doors of your business and walk away. However, more than likely, you have some kind of personal assets or credit at stake. In that case, business bankruptcy might be the best option.
There are three types of business bankruptcy:
- - Many business owners automatically assume that filing for business bankruptcy means that they have a Chapter 11 case. However, Chapter 11 bankruptcy is only used for larger-scale operations and publicly traded companies. Because creditors and banks want to cut their losses and liquidate, they’re not interested in the time and investment of financial reorganization. It also generally isn’t worth the time and money to the business owner.
- - Chapter 7 bankruptcy usually marks the end of your business. This is the type of bankruptcy you must file as an LLC or corporation or can elect to file as a sole proprietor. As a sole proprietor, you can try to use exemptions to protect both your personal and business assets but ultimately they could be claimed. An LLC or corporation must sell business assets to pay creditors.
- - Chapter 13 bankruptcy leaves the option of your business remaining open by slowly working down the debt that is owed through a court-agreed payment plan. You can only file Chapter 13 as an individual, or sole proprietor. Chapter 13 ensures that your exemptions protect 100% of your assets, or allows you to pay a value for non-exempt assets. You can also wipe out your personal liability for business debt with a Chapter 13 bankruptcy.
If you cannot decide which type of business bankruptcy is right for you or do not fully understand how they will affect you personally, it’s time to set up a consultation with a bankruptcy lawyer. A bankruptcy lawyer will lay out each option for you to consider, present the pros and cons, and help you come to a conclusion about your best financial future.
I am recognized as a debt relief agency, and provide bankruptcy relief using the laws of the State or Minnesota and the United States Bankruptcy Code.
Bankruptcy is all about getting a fresh start. Begin your path to a fresh start by calling 651-454-0007 and setting up an initial bankruptcy consultation.