If you own a small business or run a "mom & pop" store, there are some issues that will be unique to you if you or your business files for bankruptcy.
In terms of your debts, and by that I mean any and all debts, it is very important to know exactly who is legally obligated to pay them before going any further.
If you have not incorporated, organized an LLC or obtained legal status for some other type of business entity, then it is likely that you as an individual are personally liable for your debts and filing bankruptcy will get rid of those debts.
To find out if you are personally liable for your debts, take a look at the documents that you signed when you obtained the loan or line of credit.
If only your signature appears on the agreement, then it is safe to say that you are personally responsible for paying and that filing a personal bankruptcy will be a way for you to have those debts discharged.
Even if you also signed the agreement as president or as an officer of your corporation and also signed in your individual capacity, then you are personally liable for the debts, in addition to the corporation being liable.
Most lenders require you to sign personally in addition to your corporate capacity and that is because most small business are not giant multi-national corporations that have been in business for decades and banks are not going to take the risk and lend money to a start up mom & pop business unless mom and pop sign on the dotted line, sign a personal guaranty or put up some other collateral as a security to satisfy the lender.
In many cases if a small business, whether it be a corporation, LLC or LLP is having financial difficulty and the owners file personal bankruptcy, that usually solves the problems if the business itself has no saleable assets or accounts receivable that a creditor can go after.
Typically, the owners close the business, file personal bankruptcy and move on with a fresh start, free from creditor harassment.
However, if the business owed sales tax or meal tax to the state, then usually, the owners will be liable for payment of those obligations, which usually do not go away as a result of filing any type of bankruptcy.
With filing a personal or corporate bankruptcy, there are certain traps to be aware of that could be sprung on you if you are not careful.
If you have any accounts receivable, or customers that owe you or your corporation money as of the date your bankruptcy is filed, you may lose the right to collect that money because the bankruptcy code requires the "trustee" to collect the money that is lawfully due and you may not ever see that money because it will be used to pay back your creditors in part.
The trustee is the person in charge of reviewing all of your bankruptcy documents and whose job is to seize all of your non-exempt assets.
Keep in mind, with a purely corporate bankruptcy filed under Chapter 7, there are no exemptions and the trustee may take everything the corporation owns that or that is not properly secured by a creditor.
Careful analysis cannot be overlooked by you and your lawyer before any bankruptcy is filed.
You are in the best position to know what assets you have or your business has and your lawyer will need to know all of the details to effectively represent you or your business.
While the majority of corporations file Chapter 7 bankruptcy, a few file a Chapter 11 bankruptcy because they plan to continue to run their business and are able to come up with an agreeable plan to repay all of their creditors.
Chapter 11 cases are very complicated and it is best to get in and out of them as quickly as possible because historically, the longer a Chapter 11 case stays open, the more problems seem to surface which can cause problems for the business owner.
Many times, the bankruptcy trustee will insist that the corporation cease doing business after the corporate Chapter 7 bankruptcy is filed, but some do not.
If you choose to, after your business bankruptcy case is closed, you are free to open up the same business as you had before and use a different or similar name, but not the same name as your corporation that filed for bankruptcy.
Corporations do not receive a discharge from the bankruptcy court, the case is simply closed after the trustee files a report of no distribution or otherwise abandons any assets the corporation may have because their value is not great enough to warrant selling them off.
Another issue arises when a corporate business owner files personal bankruptcy but not corporate bankruptcy.
If the person filing bankruptcy is also the sole shareholder and owner of the corporation and the corporation has assets, then those assets may be exposed for seizure by the bankruptcy trustee, if they are not protected by exemptions.
This also includes all accounts receivable as of the date the bankruptcy case was filed.
However, if your corporate liabilities are greater than your corporate assets, then you may make the argument that any potential corporate assets must be offset against the corporations liabilities.
This area can be tricky and it is advisable to consult with an experienced bankruptcy attorney before your case is filed so your specific circumstances can be evaluated in order to protect your hard earned money.
In terms of your debts, and by that I mean any and all debts, it is very important to know exactly who is legally obligated to pay them before going any further.
If you have not incorporated, organized an LLC or obtained legal status for some other type of business entity, then it is likely that you as an individual are personally liable for your debts and filing bankruptcy will get rid of those debts.
To find out if you are personally liable for your debts, take a look at the documents that you signed when you obtained the loan or line of credit.
If only your signature appears on the agreement, then it is safe to say that you are personally responsible for paying and that filing a personal bankruptcy will be a way for you to have those debts discharged.
Even if you also signed the agreement as president or as an officer of your corporation and also signed in your individual capacity, then you are personally liable for the debts, in addition to the corporation being liable.
Most lenders require you to sign personally in addition to your corporate capacity and that is because most small business are not giant multi-national corporations that have been in business for decades and banks are not going to take the risk and lend money to a start up mom & pop business unless mom and pop sign on the dotted line, sign a personal guaranty or put up some other collateral as a security to satisfy the lender.
In many cases if a small business, whether it be a corporation, LLC or LLP is having financial difficulty and the owners file personal bankruptcy, that usually solves the problems if the business itself has no saleable assets or accounts receivable that a creditor can go after.
Typically, the owners close the business, file personal bankruptcy and move on with a fresh start, free from creditor harassment.
However, if the business owed sales tax or meal tax to the state, then usually, the owners will be liable for payment of those obligations, which usually do not go away as a result of filing any type of bankruptcy.
With filing a personal or corporate bankruptcy, there are certain traps to be aware of that could be sprung on you if you are not careful.
If you have any accounts receivable, or customers that owe you or your corporation money as of the date your bankruptcy is filed, you may lose the right to collect that money because the bankruptcy code requires the "trustee" to collect the money that is lawfully due and you may not ever see that money because it will be used to pay back your creditors in part.
The trustee is the person in charge of reviewing all of your bankruptcy documents and whose job is to seize all of your non-exempt assets.
Keep in mind, with a purely corporate bankruptcy filed under Chapter 7, there are no exemptions and the trustee may take everything the corporation owns that or that is not properly secured by a creditor.
Careful analysis cannot be overlooked by you and your lawyer before any bankruptcy is filed.
You are in the best position to know what assets you have or your business has and your lawyer will need to know all of the details to effectively represent you or your business.
While the majority of corporations file Chapter 7 bankruptcy, a few file a Chapter 11 bankruptcy because they plan to continue to run their business and are able to come up with an agreeable plan to repay all of their creditors.
Chapter 11 cases are very complicated and it is best to get in and out of them as quickly as possible because historically, the longer a Chapter 11 case stays open, the more problems seem to surface which can cause problems for the business owner.
Many times, the bankruptcy trustee will insist that the corporation cease doing business after the corporate Chapter 7 bankruptcy is filed, but some do not.
If you choose to, after your business bankruptcy case is closed, you are free to open up the same business as you had before and use a different or similar name, but not the same name as your corporation that filed for bankruptcy.
Corporations do not receive a discharge from the bankruptcy court, the case is simply closed after the trustee files a report of no distribution or otherwise abandons any assets the corporation may have because their value is not great enough to warrant selling them off.
Another issue arises when a corporate business owner files personal bankruptcy but not corporate bankruptcy.
If the person filing bankruptcy is also the sole shareholder and owner of the corporation and the corporation has assets, then those assets may be exposed for seizure by the bankruptcy trustee, if they are not protected by exemptions.
This also includes all accounts receivable as of the date the bankruptcy case was filed.
However, if your corporate liabilities are greater than your corporate assets, then you may make the argument that any potential corporate assets must be offset against the corporations liabilities.
This area can be tricky and it is advisable to consult with an experienced bankruptcy attorney before your case is filed so your specific circumstances can be evaluated in order to protect your hard earned money.
Source...