Running a small business is the main source of income for countless Americans. But what happens when the income starts to run dry and profits seem like a thing of the past? Should a business owner close up shop, or should they consider filing for bankruptcy to eliminate debt and keep their storefronts open?
There is no clear answer, as each business, owner, and financial situation is unique. However, for any bankruptcy filing that a business owner like yourself considers, personal assets must be considered first. If your company goes under, what do you stand to lose? If you have set up a limited-liability company (LLC), for example, you might be able to just shut down the business rather than filing for bankruptcy without losing your own assets.
If you began your business based on your own assets, or if you gave a “personal guarantee” to your bank or lender, your property is on the line if you close up shop for good. Your home, savings, automobile, and so on can be collected if you go under. At that point, bankruptcy might be the way to go.
Use Exemptions to Keep the Business Alive
If you choose to file for bankruptcy to protect your personal assets from collection, it does not mean the automatic abandonment of your small business. Chapter 7 and Chapter 13 can each allow you to hold onto business assets when your bankruptcy finalizes, allowing you to continue its operation.
In Chapter 7 bankruptcy, business debts are eliminated alongside your personal debts. You could stand to lose a significant portion of your own assets but exemptions are likely available. If you intend on keeping your business alive after Chapter 7, use as many exemptions as you can to protect your business assets. However, if you file for business Chapter 7 as an LLC, corporation, or other liability-based company, you will be granted little to no exemptions, and your business will more than likely shut down.
In Chapter 13 bankruptcy, the plan is to minimize your debt and repay what you can. The quid pro quo aspect of Chapter 13 usually translates to keeping your business assets, allowing you to continue operations as normal. It might be time to rethink the budget, however.
If you have more questions about bankruptcy and your business, you can contact Belsky, Weinberg & Horowitz LLC. Our Baltimore bankruptcy attorneys have more than a century of combined legal experience and each partner has achieved an AV Preeminent® Rating by Martindale-Hubbell®.