Bankruptcy helps business owners
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Nothing can be more rewarding than owning your own small business, but it can also be stressful, particularly if the market shifts, the economy takes a downturn, or you’re hit with unexpected issues that reduce revenue or increase expenses. According to research by the US Bureau of Labor Statistics, one-third of businesses fail within two years of hanging their shingle. But even businesses with financial problems can recover. And, in some cases, it may be better to file North Carolina business bankruptcy, close the business, work up a new business plan, and then start over. Donald Trump, after all, is a billionaire, and he’s filed business bankruptcy four times. Here’s a look at how business bankruptcy can help you.
Personal bankruptcy vs. business bankruptcy
Depending on how your business is structured and whether the business debt is tied to your personal assets, you may need to consider both a business and personal bankruptcy. If your business is an LLC or corporation (whether an Inc or a Sub-s) and you are current on your state corporation fees, you should have a barrier between the business and your personal financial concerns. However, if you never incorporated and are simply running your business profit and losses through your personal taxes, that means a personal bankruptcy alone should wipe out the debts.
Chapter 7 vs. Chapter 11 vs. Chapter 13
Chapter 7 is a type of business and personal bankruptcy that seeks to wipe out as much debt as possible but will also shut your business down in most cases. This is referred to as a liquidation. Chapter 11 is filed by businesses who want to try and recover from their financial straits by reorganizing. Chapter 13 is only for individuals but if you are a sole proprietor, this chapter can help with business and personal debts to buy you time to catch up on secured debt and wipe out a portion of unsecured debt that you can no longer afford.
Upside and downside of Chapter 7 for business owners
As a sole proprietor, Chapter 7 can wipe out business and personal debts and, if your business assets fall within the limitations of North Carolina exemptions, you may be able to keep operating your business during and after the bankruptcy. If you own but are not a sole proprietor (like with a partnership, corporation or LLC), you can use Chapter 7 to shut down your business and shed your debts. A business chapter 7, unlike a personal Chapter 7, does not offer exemptions to protect assets and will force your business to shut down and allow the Trustee to sell business assets to satisfy debts.
How personal guaranty changes things
If you signed a personal guaranty on business debt, that can muddy the financial waters. Owners of smaller businesses, new businesses, or those with a thin credit history will often be asked to sign a personal guaranty on debt. This means that even if you file a business bankruptcy, the debt will survive and the creditor can pursue you individually for the debt. That means they will continue debt collection efforts and may go after your personal assets (home, car, cash in the bank, etc.) to satisfy that debt. Filing personal Chapter 7 can be a shield and Chapter 13 can buy you more time.
If your North Carolina business is struggling, call us
For business owners struggling to keep their doors open, North Carolina bankruptcy may be the answer. Contact the Law Offices of John T. Orcutt to find out about the relief that Chapter 7 and Chapter 11 business bankruptcy offers and if one of these may help you. Call +1-919-646-2654 now to schedule a free business bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.