Submitted by Rachel R on Mon, 07/28/2014 - 12:58pm
Facing a business closure? What type of bankruptcy will protect you best?
Image source: Flickr Creative Commons User Dvortygirl
If you own a small business, are drowning in business bills and are desperate for a financial fresh start, you may think filing business bankruptcy is the best option for you. In fact, it may not be at all. Instead, you may be better off filing a personal bankruptcy instead. This is definitely true if you own a sole proprietorship that you haven't bothered to incorporate, but what if you have incorporated as an LLC or sub-S corporation to make your business “official”? The good news is that personal bankruptcy can still work if you take a couple of extra steps.
Why Will a Personal Bankruptcy Be of More Benefit?
Often as a small business owner, even if you're incorporated, you'll be asked to sign a personal guarantee on your business debts. This means that if you're leasing office space or equipment, have purchased inventory or took credit out for anything for your small biz, the terms and conditions likely spelled out that even if your business goes under, you are personally still on the hook for what is owed. If you can't pay these bills and file a business bankruptcy, only your business will be off the hook. Anything you signed a personal guarantee for will still be eligible for collection based on your personal assets. This can cause financial disaster.
Do You Need to File Both a Business and Personal Bankruptcy?
In most cases, a personal bankruptcy will accomplish what you want, particularly if your business is no longer operating. If you're unsure about how to get the best relief because your business is still a going concern, contact a reputable North Carolina bankruptcy attorney like ours at the law offices of John T Orcutt for a consultation on both your business and personal finances. If you're formally incorporated as an LLC or S-corp, you'll need to dissolve the corporation prior to filing personal bankruptcy but this is easily done with one form and a $10 fee. Once that's accomplished, you can likely make do with just a personal bankruptcy which will save you money and get you debt free of both business and personal debts.
What Happens to Business Assets During Personal Bankruptcy?
If you have business assets that are leased or that you have a loan taken out to purchase, the creditors will take these back unless you want to keep them and work out a negotiated payoff. If you're shutting your business down (or already have), this shouldn't be such a big deal. If you have assets that are owned by the business free and clear, dissolving the business will convert these to personal assets which can then be better protected by a personal bankruptcy by using your North Carolina bankruptcy exemptions.
Contact the law offices of John T Orcutt for a free consultation on your business and personal debts and how filing personal bankruptcy can get you the financial relief you need for crushing business debts.
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