Small Business Owner Bankruptcy Information
Determining if and when a small business owner should file for bankruptcy takes some time and thought. Small businesses fail for a variety of reasons some expected and many unexpected reasons. While bankruptcy may be the best option for many small business owners, there are circumstances in which bankruptcy may not be the best option.
This article has some considerations before an individual considers filing for a small business owner bankruptcy. Also it is important to speak to your attorney in order for you to understand the business bankruptcy laws.
One consideration is whether your personal assets are at risk. If your small business was a corporation or a limited liability business entity and there were no personal guarantees made on any lines of credit or loans, then closing the business and walking away may be the best option.
For example, if your small business is a corporation, any recourse creditors may have would be against the corporation and not you personally. However, there are exceptions to this rule and depending on how the business was run you may be personally liable on some of your debts. The ability for a creditor to reach business owners directly rather than the entity is called “piercing the corporate veil.”
The majority of small business owners facing bankruptcy have personal guarantees. Most banks will not provide business loans or lines of credit unless they feel that they would have some recourse in case of default. In determining whether a small business owner bankruptcy is the best course of action, it is important to speak with a business and/or bankruptcy attorney regarding your options. Below is a list of important points a small business owner should consider when filing for bankruptcy.
- Do I want to continue to run my business?
- The first decision a small business owner should consider is whether he/she wants to continue to run the small business or if closing the doors for good is a better option. While many businesses survive a Chapter 7 bankruptcy some do not.
- Do I qualify for Bankruptcy?
- Not everyone will qualify for bankruptcy. If you still have a steady stream of income, the chapter 7 bankruptcy trustee may determine that you have the ability to pay your creditors back and may force you into another type of bankruptcy such as a chapter 13 bankruptcy.
- Do I have personal assets that will be liquidated?
- In a typical small business owner bankruptcy, the individual will be able to keep their personal assets. However, if you have equity in your home, car or a large amount of property associated with the business that you do not want liquidated (sold), a Chapter 7 bankruptcy may not be the best choice.
- Do I have the ability to eliminate my debts outside of bankruptcy?
- One important decision a small business owner would have to make is if they can avoid bankruptcy all together and mitigate the damage of collections etc.
- Are there assets that can be sold to pay creditors?
- Is there a possibility I can settle most of the debts and avoid collections, judgments and liens?