Can Business Assets Be Touched if You File Personal Bankruptcy?

By Beverly Bird

If you are self-employed and think you might need to file for personal bankruptcy protection, your case is probably going to be a bit more complicated than if you worked for someone else. There are various types of business entities and bankruptcy treats them differently – the rules aren't one-size-fits-all.

If you are self-employed and think you might need to file for personal bankruptcy protection, your case is probably going to be a bit more complicated than if you worked for someone else. There are various types of business entities and bankruptcy treats them differently – the rules aren't one-size-fits-all.

Duty to Disclose

You can't sweep your business under the carpet and pretend that it doesn't exist when you file for bankruptcy. This is true whether you've incorporated or you're a sole proprietor. In both cases, your business represents assets that you own in one manner or another, so you must include details about those assets in your bankruptcy petition.

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The Value of Your Business

If you have a sole proprietorship or a partnership, its value is likely based on unquantifiable contributions made by you. You might provide talent or skills that are the essence of the business, and the court doesn't put a dollar value on these for bankruptcy purposes. Equipment and other assets such as vehicles and real estate are a different story – they're tangible property that can be sold. If you're a sole proprietor or partner, there's no solid dividing line between what you own and what your business owns because you and your business are one and the same for legal purposes. Its assets are your property so you must list them in your bankruptcy petition. If you file for Chapter 7, the trustee takes your non-exempt assets and liquidates them to raise money to pay off as much of your debt as possible, so your business assets are at risk. Many states offer exemptions for tools of trade or business property, but these exemptions may not be substantial enough to protect all that you own. For example, the federal exemption for tools of trade is $2,300, although some states allow you to protect more – Oregon's exemption is $5,000.

Incorporated Businesses

If you've incorporated your business, this changes the situation. You and the corporation are two separate entities as far as the law is concerned, although any stock you own is considered your personal asset, and you may lose this if you file for Chapter 7. Otherwise, assets owned by the corporation are likely safe from your personal creditors.

The Chapter 13 Option

You may not be limited to filing Chapter 7. If you have sufficient disposable income, you can file for Chapter 13 instead, and if you do, none of your assets are at risk. Chapter 13 involves a payment plan. You give money to the trustee each month and he uses this money to pay down your debts rather than liquidate your property. If you qualify for Chapter 13, it doesn't matter whether you operate a sole proprietorship, a partnership or own stock in a corporation. Your business and personal assets are both safe.

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Can I Run My Sole Proprietorship After My Bankruptcy Filing Date?

References

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Disclosing Money for a Bankruptcy

In most cases, you can pick and choose what personal information you share with others. When you file for bankruptcy protection, however, the federal government wants to know everything there is to know about you, your assets, your income and your debts. No detail is too small, and you have a legal responsibility to be forthcoming. You're receiving a gift: the discharge of your debts. In exchange, you have to be honest about your ability to pay them.

Estate Responsibilities of a Sole Proprietorship Upon Death in Louisiana

If you have your own business that you own by yourself, and you’ve never taken steps to incorporate it or create some other legal structure for it, you have a sole proprietorship. In Louisiana and elsewhere, this means that your business’s debts and liabilities are your personal responsibility, while its income and assets are your personal property; there’s no dividing line. When you die and your estate enters probate, your business assets and debts don’t receive much in the way of special consideration.

What Will Happen to My Business If I File a Personal Bankruptcy?

Bankruptcy may be a viable solution if your have more debt than you can handle. However, if you are involved in a business, the impact of your decision to file for bankruptcy could extend beyond your personal affairs. When a small business owner, entrepreneur or corporate shareholder files for bankruptcy, there can be consequences for business management, its partners or shareholders and assets. Whether your business assets are vulnerable to claims by creditors depends on how your business is legally organized.

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