Until the 19th century, if you owned a business that was forced into bankruptcy, you were held personally responsible for the debts. That meant that your business debts would wipe out your personal finances and even land you in prison.
After the invention of the Limited Liability Company (LLC), owners were no longer automatically at risk for losing their personal fortunes. Today, if your business is in dire financial straights, you can file bankruptcy without too much risk to your personal finances. But if you are filing as a business owner, you may face some challenges that others might not.
Choosing an Option
The first difficulty when filing for bankruptcy as a business owner is deciding what chapter to file. If you must declare bankruptcy as a business owner, you'll have three options:
Chapter 7 bankruptcy means that all of your business assets will be liquidated and your business will not be able to continue functioning.
Often referred to as a "reorganization," Chapter 11 allows your business to continue functioning. When you file Chapter 11, you must have a plan approved by your creditors for how you are going to repay them. Because Chapter 11 is so difficult to file, it is most often used by major corporations and publicly traded companies.
With Chapter 13 bankruptcy your repayment plan must be approved by the court, instead of the creditors. Chapter 13 does not require you to liquidate your assets, but it is more difficult to qualify for. There is a maximum level of secured and unsecured debt you can have in order to qualify. Chapter 13 is only available to sole proprietorships.
Deciding to Continue
To help figure out which kind of bankruptcy is appropriate for you, you have to first decide whether or not you want to continue your business. If you want to continue your business Chapter 11 is your only option. Before you decide to continue, make sure you have a solid financial backing and a plan for how you are going to reorganize.
Organizing your Assets
Filing for bankruptcy might mean that your personal assets are in peril. If you want to protect your personal assets, Chapter 13 is your best option. With the help of a bankruptcy attorney, like Jeffrey S. Arnold, Attorney at Law, P.C. , you can navigate state exemptions to retain ownership of some of your assets with Chapter 7.
Filing for bankruptcy can be tricky and intimidating. Don't hesitate to reach out to some financial legal counsel to make sure you're getting the best deal.