What Happens to My Small Business With Personal Bankruptcy?

The impact of a personal or consumer bankruptcy on your small business depends entirely on how your enterprise legally is organized, according to "The Glannon Guide to Bankruptcy" by Nathalie Martin.

Type of Business Organization

If you operate your business as a sole proprietorship, with no independent legal structure, all of your business assets and debts will become a part of the bankruptcy case. If you established an independent legal entity for your business--a limited liability, partnership or corporation, for example--your enterprise is kept separate from the bankruptcy.

Misconceptions

Two common misconceptions persist regarding a personal bankruptcy, misplaced beliefs at both ends of the spectrum. Some people incorrectly believe that a personal bankruptcy always affects a small business. Others improperly conclude that such a bankruptcy never affects a small business.

Significance

The significance of filing a personal bankruptcy if you established a legal entity for your business is that the assets of your business are fully protected. Those assets cannot be used to satisfy personal debt owed to a creditor.

References

• "The Glannon Guide to Bankruptcy"; Nathalie Martin; 2006
• Cornell University Law School: U.S. Bankruptcy Code
• American Bar Association: Bankruptcy & Insolvency Litigation Committee

Resources

• Cornell University Law School: Bankruptcy Overview
• U.S. Bankruptcy Courts: Bankruptcy Basics Videos
• American Bar Association: Directory of State and Local Bar Associations