If you are filing for Chapter 7 personal bankruptcy and you are a business owner, there is a good chance that the filing will lead to your business being shuttered. The determining factor is whether you operate as a sole proprietorship, an LLC or partnership, or a corporation.

Individuals who operate sole proprietorships enjoy several advantages for being what is known as “pass through” entities, but when it comes to bankruptcy these benefits generally work against you. That is because there is little to no separation between the owner and the organization. At the very least the bankruptcy trustee will likely ask you to stop operations for a period of time so that they can assess the value of its assets for possible sale as part of the bankruptcy estate. This may not be the case for freelancers or other service providers whose businesses operate without assets, but the trustee will also want to put a stop to incurring liabilities, so that determination – and the determination about selling assets – will be specific to your business.

If you are part of a partnership or LLC with more than one owner, your business will be able to continue operating but your share will be added to your estate. In most cases, the business will be protected from the impact of your bankruptcy, unless you are the majority owner, but it is a good idea for you to seek legal guidance regarding your ownership interest and its role in the business before you file.

If you are the sole or majority owner in a corporation, your business will be at risk of the trustee assuming control of your shares or interest and then voting to sell or liquidate the business for distribution to your creditors.  That determination will be based on how much the assets can be sold for and whether or not they are exempt. If it makes financial sense to liquidate then the trustee will do so. If, however, the corporation has other members, then personal bankruptcy is unlikely to impact it.

Every bankruptcy situation is unique, but owning a business can complicate the process. For help navigating the challenges of filing for bankruptcy and understanding all of its potential outcomes, contact our experienced bankruptcy firm today to set up an appointment.

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