If you own your own business, you probably view it as a piece of yourself. After all, you’ve invested a huge amount of your time and money into it, as well as intellectual and emotional capital. For many business owners, the idea of losing their business feels like a death, and if that’s the case for you, filing for personal bankruptcy may feel like a very scary proposition. Here’s what you need to know.

There are two ways to file for personal bankruptcy protection. Under Chapter 13 you are indicating that you can pay your bills but you need more time, better terms, or both. Your debts are reorganized in a way that makes it easier for you to meet your obligations. By contrast, Chapter 7 is filed when you cannot pay your debts at all and need them to be discharged. As a sole proprietor, there is no separation between you and your business. Your bills and the company’s bills are the same, and an automatic stay will be put in place for both. Though the bankruptcy trustee may pursue the sale of your assets, any equipment or tools that you use as “tools of your trade” can generally be exempted from being sold to repay your creditors.

Businesses that are established as partnerships, limited liability companies, or corporations are entirely separate and distinct from their owner. If you file for personal bankruptcy then your partners may need you to sell your interests back to them, and the same is true for members of a limited liability company. Corporations are entirely protected from the financial dealings of their owners. Because each of those types of business entities functions as separate legal beings from their owners when they face insurmountable debt their bankruptcy filings need to be filed separately from their owners.

When businesses file for bankruptcy, they can choose to do so under either Chapter 7 or Chapter 11. While a Chapter 11 bankruptcy allows the business to continue operating while completing a debt repayment plan, a business’ Chapter 7 bankruptcy operates in much the same way as a personal Chapter 7 bankruptcy filing: The business stops its operations entirely and all assets are liquidated and sold in order to help pay creditors.

For more information on how personal bankruptcy will impact your life, your career, and your business, contact us today to set up a time to meet.