Submitted by Rachel R on Mon, 05/12/2014 - 1:53pm
Small business owners deep in debt may need bankruptcy assistance
Owning your own business can be part of the American dream. But if your business starts to take a nosedive, it can quickly turn into a nightmare. Most small business owners personally guarantee the debts they take on when they rent or buy office space or buy inventory or equipment. If you can't make your payments on these debts, you may be worried that your creditors will come after your personal assets like your home or bank accounts. This is a valid concern because it absolutely can happen.
What type of business owners can wipe out debt in bankruptcy?
There are different types of bankruptcy for different situations, but personal bankruptcy is one of the least complex type of filings. If you are the sole proprietor of your business, filing a Chapter 7 bankruptcy will wipe out your business debts just as if they were personal debts – this also works if you're a Subchapter S owner. If you own a corporation or an LLC, personal bankruptcy is not an option – you'll have to pursue Chapter 11.
What type of business debts can be relieved in bankruptcy?
Because this is essentially a personal bankruptcy, all of your business assets are considered personal assets. If you're financing assets such as equipment or office space, you will have to give back the asset in order to have that secured debt wiped out. If you own some business assets free and clear, the Trustee may want to liquidate these to help pay your creditors. Other debts that can be wiped out include:
What type of business debts cannot be relieved in bankruptcy?
As with any Chapter 7, there are some debts that cannot be relieved in bankruptcy and that you will still have to find a way to pay. These include:
When should you consider filing bankruptcy for your small business?
If your small business is drowning in debt and you don't see that you'll be able to generate enough revenue to ever dig out, filing bankruptcy may be your best option. If, however, you can liquidate your business assets to pay your bills so that you're at a break-even position, this may be a preferable option. Filing Chapter 7 for any reason will result in a ding on your credit rating. If you then decide to start up a new business venture, this can affect your ability to rent equipment, office space or get vendors to contract with you.
If you own a small business in North Carolina that's struggling, contact the law offices of John T Orcutt for a free consultation. We'll take a look at your business income, debts and financial position and offer you valuable advice on your best strategy for getting out of debt, whether it's bankruptcy or another option. Call us today – we have worked with many struggling small business owners to help them protect their home, cars and other assets from their business creditors.
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