If you file personal bankruptcy and you own a business you have to be careful on the impact the bankruptcy will have. The first thing that has to be determined is the type of ownership structure, i.e., sole proprietorship, corporation, partnership or limited liability company. Next, you want to have an idea of the rough value of that business interest. To be sure, you want to be able to continue to operate and protect your ownership interest in the business if you file a bankruptcy.
Which Bankruptcy Chapter Do I File If I Own a Business?
Chapter 7 Bankruptcy:
Chapter 7 is the most common type of filing, which is the liquidation bankruptcy. In this process, the court appoints a trustee, which may be an entity or individual, to oversee a liquidation of all the filer's (non-exempt) assets in order to satisfy debt claims. In a Chapter 7 filing, the debtor's ownership in a business may or may not be considered an asset that can be liquidated. If you want to continue operation of the business and a chance exists that the business interest would be liquidated, then you may want to file a Chapter 13 bankruptcy.
Chapter 13 Bankruptcy:
In a Chapter 13, a reorganization plan can be used to save a debtor's business interest and restructure debt. The Chapter 13 takes into account the assets, debts, and potential future sources of income or revenue. Only individuals can file for Chapter 13. Therefore if you are a sole proprietor or own shares in a corporation or limited liability company, you can file an individual Chapter 13 and list your property interest on schedule B to exempt the equity / property interest that you have in it. The non-exempt portions of the business equity will have an impact on how much that has to be paid creditors. Filing a Chapter 13 while owning a business is much more complicated and considerable planning should be done.
Chapter 11 Bankruptcy:
Another option for an individual that owns a business and is trying to protect that ownership interest is a Chapter 11 Reorganization. Typically, a Chapter 11 would be used if the debt exceeds the limits allowed under a Chapter 13. A Chapter 11 is usually more expensive and involved than a Chapter 13, so is not, in most cases, the preferred Chapter for an individual to file. There are certain legal advantages, such as the longer time to potentially pay back creditors, in a Chapter 11. In a Chapter 13, you are limited to the debt restructuring over a 60 month plan. There is no such limitation in a Chapter 11.
Significant Planning with a Personal Bankruptcy Attorney
An individual that owns a business should plan carefully with a personal bankruptcy attorney with extensive knowledge of the different Chapters and options. Please feel free to call a lawyer in one of our New Jersey offices. Our law office offers a free initial consultation.