How do you file a small business bankruptcy. You never want to continue a failing small business that continues to lose assets. But how do you file? Do you file bankruptcy personally or does just the small business or corporation file. Can you restructure the business in a Chapter 11 or 13 so it will make a profit?
If you have a sole proprietorship, you can’t file Chapter 11, or Chapter 7 bankruptcy for just the business. You have to file yourself to eliminate the personal liability. Personally filing Chapter 7, 13 or Chapter 11 allows you a “fresh start” and new budget to live on. You can work with your attorney on how to start a new business that is operated profitably and differently. When a proprietorship files a Chapter 7, 11 or 13 bankruptcy, all debts; personal and business; are discharged.
A Corporation or a Limited Liability Company (LLC) is a separate entity. Filing Chapter 7 or 11 bankruptcy for a corporation does not involve personal assets or debts. A Chapter 7 will shut down a business but you may start a new one in it’s place. A Chapter 11 will allow a business to restructure and continue if it can make a profit. But if you have guaranteed debts you probably have to personally file Chapter 7, 11 or 13.
There are generally three options for a failing business.
1. Abandoning a business often means ruining your name worse than filing bankruptcy or dissolving a business. Either abandoning or personally dissolving the business can mean later litigation in court. If the business was not properly dissolved one person was paid improperly or more than others then you may be personally responsible.
2. Personally dissolving a business by notifying the state, selling assets and using the money to pay creditors pro-rata shares means you do the work and you are personally responsible for gathering assets and distributing them to the creditors. Do it improperly and you will be personally responsible for the debts. It is less expensive than bankruptcy but it is full of personal liability and often the start of never ending problems.
3. Filing a Chapter 11 may allow you to determine how assets are disposed. Filing a Chapter 7 bankruptcy means a Trustee who understands how to sell assets will take charge assets, sell them and distribute the proceeds properly with as little personal liability to the creditors as possible. Often this is worth the cost. It eliminates the work, and liability to dissolve the business. You can get on with life and a new business or career. Creditors more likely to give up efforts to collect when a bankruptcy is filed. Without it, some creditors won’t give up coming after the owner. Whichever option you take hire an excellent attorney to guide the process.
Nick Thompson Louisville Kentucky Bankruptcy Lawyer
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