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When you own a business, you are taking a risk. What happens when that business takes a bad turn? Do you have to file for personal bankruptcy? Here is what you need to know about business bankruptcy and how to avoid it affecting your personal finances.
If you are a sole proprietor , then your personal and business debts may be considered the same. As a sole proprietor, you can file for Chapter 7 bankruptcy and wipe out your business and personal debts. In this case, unfortunately, all of your assets become part of the bankruptcy estate. If you want to keep from having to file personal bankruptcy, then you want to steer clear of Chapter 7, if you are a sole proprietorship.
Chapter 13 bankruptcy, on the other hand, allow you to make monthly payments towards your debts. This is the best option if you still want to keep your business running. You can also use this if you want to keep your property or if you need protection from a creditor.
Partnerships and Corporations
If you are a partnership or a corporation, then your business is separate from your personal finances. In this case, none of your business property is safe during a bankruptcy. Your options for your business include the Chapter 7 bankruptcy and the Chapter 11 bankruptcy.
With a Chapter 7 bankruptcy, it’s easier to close down your business. In this type of bankruptcy, you do not have to sell any equipment or business assets. This streamlines the entire process! In addition, it makes the whole process transparent. This means that creditors can’t come to you later and claim fraud. You can avoid a lot of litigation when you turn to Chapter 7 bankruptcy.
Chapter 11 bankruptcies are for partnerships and corporations. In this type of bankruptcy, you can still operate your business. The difference is that you would pay less money each month towards your debts. Now, you do have to keep in mind that when you file Chapter 11, you still have to worry about creditors and legal fees.
Sometimes businesses do not work out or end up costing more money than they turn in profit. Most do not want to have to worry about their business debts taking over their personal lives or having to sell their personal assets to pay off business debt. The best way to do this is to have your company separate from yourself and file for bankruptcy that only affects the business. To learn more about bankruptcy, contact a bankruptcy lawyer in Memphis, TN for a consultation.
Thanks to Darrell Castle & Associates, PLLC for their insight into bankruptcy law and how to avoid bankruptcy as a business owner.