Can I Keep My Business While Filing for Bankruptcy?

For example:

• Chapter 7 bankruptcy involves selling the debtor’s non-exempt assets to pay off debts, with most remaining debts being discharged. If a business files bankruptcy under Chapter 7, it will most likely be closed, and its assets will be sold/liquidated by the bankruptcy trustee to pay creditors. In such instances, the business ceases operations, and the debtor’s ownership interest ends. Only business assets that are protected by the bankruptcy exemptions will survive.
• Chapter 11 bankruptcy allows businesses to restructure or reorganize their debts and continue operating. The business remains open, and ownership may stay the same, but operations and financial obligations are adjusted under court supervision.
• Chapter 13 bankruptcy involves creating a feasible repayment plan to pay off some or all debts over three to five years while keeping assets. It’s primarily meant for individuals. However, sole proprietors can use it to reorganize their debts while continuing to operate. The business continues functioning, and the owner manages the repayment plan alongside business operations.

Sometimes, choosing a specific type of bankruptcy is not solely based on the debtor’s decision but on their ability to meet the established eligibility requirements. Our bankruptcy attorney can assess your case and help you understand the most appropriate type of bankruptcy based on the legal requirements and your unique situation.

Type of Debt and Ownership Structure

Most people who file for bankruptcy do so to get relief from personal or business debts.

Personal debts include debts incurred by individuals for personal or household purposes, such as credit card debt, medical bills, and personal loans. In contrast, business debts are related to business activities, including loans, unpaid invoices, and business credit card balances.

If you’re a business owner seeking bankruptcy for your personal or business debts, your business’s ownership structure could determine whether you can keep it.

For example, if you run a sole proprietorship, you are considered an extension of your business. In such cases, there’s usually no distinction between business and personal debts, so your business could be affected regardless of the type of debt you need relief with, especially if you’re filing for Chapter 7 bankruptcy.

But if your business is set up as a limited liability company, then your business and personal debts are independent of each other. Your personal bankruptcy will not affect your company’s operations. Similarly, if your company goes bankrupt, your personal assets will not be affected unless you gave a personal guarantee to cover the debts or there are other exceptional circumstances at play. In such cases (business bankruptcy), the bankruptcy chapter you choose ultimately determines whether or not your business can continue to function after filing the bankruptcy petition.

For sole proprietors, the line between personal and business debts and assets can be blurry. We can help clarify which assets may be at risk and develop strategies to safeguard your business. We can also advise on which type of bankruptcy is most appropriate for your situation.

Corporations, LLCs, and partnerships face different considerations in bankruptcy. Our team can explain how the corporate veil may protect personal assets and outline the implications for shareholders or partners.

Bankruptcy laws are complex and ever-changing. Our lawyers stay up-to-date on the latest regulations and court decisions, ensuring your bankruptcy case is handled according to current standards.

By leveraging our extensive experience and legal knowledge, we ensure that clients receive effective representation and tailored solutions to protect their interests and achieve the best possible results in bankruptcy proceedings. We’d be glad to help you navigate the bankruptcy process and provide clarity and support during this difficult time.

Contact Us Today

Whether a debtor can retain their business after filing bankruptcy largely depends on the type of bankruptcy filed and the unique circumstances of the case.

 For individuals with personal debts or sole proprietors, Chapter 13 bankruptcy provides a pathway to keep their business while repaying debts through a structured repayment plan. For incorporated businesses, Chapter 11 bankruptcy offers the opportunity to reorganize and continue operations, preserving the business while addressing financial obligations. However, filing  Chapter 7 bankruptcy to eliminate business debts typically results in liquidation, which could lead to the loss of the business.

The complexity of bankruptcy laws underscores the importance of seeking professional legal counsel and guidance to navigate the process effectively and explore all available options. Our experienced team is here to guide you through every step. We’ve helped individuals and business owners find viable solutions to their debt problems while preserving their business ownership. We’d be glad to do the same for you.

Contact us today. Let’s work together to protect your business and set you on the path to financial stability and recovery.