Helping With Your Financial Future

Do you lose your business if you file for bankruptcy?

On Behalf of | Aug 16, 2021 | Uncategorized

California small business owners may worry about the ramifications of filing for business bankruptcy. Even though debts are overtaking profits, the business might be all that you have. Is it possible to save the company and still achieve debt relief through bankruptcy?

Chapter 7 may cost you a business

If you decide to file for Chapter 7 bankruptcy as the company, the business stops. A way around business closure is to file for personal bankruptcy under Chapter 7. However, if the debts that are causing problems belong to the business, personal bankruptcy may not help you. Also, remember that the business must close if ownership is as a partnership. In this situation, the bankruptcy court will liquidate any assets the company owns to meet its financial obligations.

Chapter 11 is a better alternative

When keeping the business is your top priority, consider Chapter 11 rather than Chapter 7. Under business bankruptcy law, you put together a debt repayment plan while the company’s operation continues. However, remember that a trustee may run the company now. Alternatively, the court may allow you to maintain leadership of the day-to-day operations as long as you adhere to the repayment plan.

Looking for debt resolution

It is always in your best interest to separate business debts from personal debts. While walking away from a company may not seem like a step you can envision taking, remember that it protects your personal assets. Therefore, you will be able to start another company.

When you commingle business and personal assets, the loss is more difficult to deal with. Also, you may have to rely on a personal bankruptcy exemption to keep whatever business tools you need. Depending on the size of the company, this personal exemption may not be sufficient to start a new company right away.