Helping With Your Financial Future

Consider These Five Factors That May Affect Your Business Bankruptcy Decisions

A customized evaluation by a bankruptcy attorney of your business finances and debt relief options may be the most expedient way to discover suitable solutions. We have offered some points to ponder below, but we urge you to schedule a consultation with The Law Office of Judith A. Descalso if you are thinking about bankruptcy for your business.

  1. Business bankruptcy may have different purposes. Two common scenarios are (a) businesses that are shutting down and using bankruptcy as part of that process and (b) businesses that are using bankruptcy as part of a pathway back to profitability after a time of distress. As a business owner, you should ideally clarify which path you are on when determining how to move forward.
  2. For bankruptcy purposes, the form of business entity matters. There is a difference between a business set up as a sole proprietorship and a business formed as a limited liability company (LLC) or corporation. Before deciding whether business bankruptcy is the best option, you should understand whether your personal finances will factor into it. This would likely be the case with a sole proprietorship.
  3. Owners whose struggling businesses are sole proprietorships may have to consider filing personal bankruptcy. Even though the debts may be solely related to your business, as a sole proprietor you are personally liable for those debts. The overall process may be challenging, but the outcome can bring the debt relief that you need as a sole proprietor, covering both personal and business finances.
  4. LLCs and corporations are legal entities separate from the owners. While individuals receive a discharge of their personal liability for debts in bankruptcy, this is not true for entities. In a Chapter 7 bankruptcy for an LLC or corporation the business must cease operations. There is no discharge available for the entity and assets may be liquidated, and the proceeds distributed among creditors. There are several factors to consider before putting an entity into a Chapter 7 bankruptcy.
  5. Owners should think hard about putting a business entity through Chapter 7 bankruptcy. If restoration of profitability is the goal, this is not likely the right choice, since bankruptcy will put an end to a business’s viability. Chapter 11, on the other hand, includes business reorganization and can keep a business in operation while its finances are under repair.

Discuss Your Business Debt Relief Options With An Experienced Attorney

Bankruptcy is all that we do at The Law Office of Judith A. Descalso. Hear more about what you should know before deciding to file bankruptcy to resolve business indebtedness. Call us at 760-670-4863 or complete our online inquiry form to schedule a free consultation.