Bankruptcy after Owning a Business
Business owners who turn to bankruptcy protection may have different concerns than non-business owners. The bankruptcy court recognizes that. The options for current and former business owners are slightly more diverse than those for ordinary citizens. Many people struggling with debt after a failed business venture have both personal and business debts, and the line between those may not always be clear.
Bankruptcy & Businesses
One consideration business owners have is how their business is classified.
- Partnerships, corporations and limited liability companies: These types of businesses are legally separate from any shareholders or partners and so can file for either Chapter 11 or Chapter 7 bankruptcy by themselves.
- Proprietorships: This type of business acts in bankruptcy court as an extension of the proprietor, meaning that the individual proprietor can choose to file for either Chapter 7, Chapter 11 or Chapter 13 bankruptcy. Any assets or debts of the business in this instance are classified as extensions of the proprietor/business owner.
These classifications are only broad outlines of businesses in bankruptcy. Anybody seeking specific or detailed information on a personal or business bankruptcy filing should consult with a bankruptcy attorney.
Reorganization Vs. Liquidation
Another question for those considering bankruptcy after owning a business is whether to reorganize their debts (by filing for Chapter 13 or Chapter 11 bankruptcy) or to liquidate their assets (by filing for Chapter 7 bankruptcy).
- Reorganization: This allows business owners to reorganize their debts, pay them off and continue business operations. As in personal bankruptcy reorganization, business reorganization tends to work well for those with fundamentally sound businesses who are facing a temporary financial setback.
- Liquidation: This allows business owners to sell off their business’s assets and use the money to repay creditors in full or part. After a liquidation, the company ceases to exist. This type of bankruptcy may work best for those whose business models have proven ineffective for any reason.
- Liquidating Chapter 13 or Chapter 11: This option is a sort of compromise between the first two and allows a business owner to sell off the business and/or its parts.
Learn More from a Bankruptcy Lawyer
If you're ready to learn more about bankruptcy after owning a business, you can take advantage of this opportunity to connect with a bankruptcy attorney practicing in your state. Simply fill out this form for a free legal consultation.