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.
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.
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.