Can I File Bankruptcy Without Affecting My Business?
If a business owner or entrepreneur is considering filing for bankruptcy, they may be worried about how it will affect their business operations. There are different classifications of business, such as LLCs, corporations and sole proprietorships, and bankruptcy can affect each of this organizational structures differently. The extent that the bankruptcy will change the business depends if the bankruptcy is a personal one or a business filing, and how connected the debtor is with the business.
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Personal Bankruptcy
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If you choose to file for a personal bankruptcy, you have a choice between chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy is more immediate, but also gives the court more power to seize your assets to pay off creditors. Chapter 13 bankruptcies set up a long-term payment plan but are not as aggressive when it comes to seizing assets. In both cases, the bankruptcy actions deal only with personal assets, and do not directly concern what a business owns or makes. This may be slightly different in the case of a sole proprietorship, in which the business and the owner are legally similar, so assets may be interchangeable.
Bankruptcy Estates
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When the courts begin bankruptcy proceedings, they appoint a trustee and create a bankruptcy estate that manages asset sales and payments to creditors. These bankruptcy estates can affect your business is a very important way: they have the ability to seize the stock you hold in your own business. This stock is technically a personal asset, but if they seize and sell it, you will no longer be in direct control of the company. Again, the estate cannot directly seize business assets in most cases.
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Future Projects
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As an entrepreneur, your chief business issue in a bankruptcy will be the matter of credit. Bankruptcy is a huge blow to your credit rating, and will show up on your credit report for years to come. If you want to obtain a business loan for any purpose, lenders will see the bankruptcy on your personal record and be disinclined to offer you any type of financing at all. This can make it very difficult to expand or start any other type of new business.
Business Bankruptcy
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If you are considering a business bankruptcy, the consequences will be far more severe. In many cases the business is completely shut down and the employees are dismissed. In some cases the business is sold to another firm or investors, but the stock in the original business is canceled and the financial operation of the old business is ended permanently. You as an entrepreneur, however, may have more freedom to start another business on your own.
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