A Bankruptcy Attorney Working with Small Businesses in Arizona, Colorado, and Nevada
According to the Small Business Administration (SBA), there are around 28.8 million small businesses in the United States. Small businesses are often described as the backbone of the economy and employ millions of people throughout the United States. They are also subject to the same economic forces to which everyone else is subject to, and small business owners can find themselves deep in debt and unable to keep up with their financial obligations.
In many cases, filing for bankruptcy can help small business owners reduce or eliminate debts – all while staying in business and protecting themselves from creditors, in some cases. That being said, if your business is in debt and you would prefer to liquidate your assets and wrap things up, bankruptcy may be able to help with that as well. To learn more about how small business bankruptcy may be able to help you, call our office today at 866-780-4855 or send us an email through our online contact form.
Are Your Personal Assets at Risk?
Many small business owners are curious as to whether filing for bankruptcy will put their personal assets at risk. The answer to this questions depends on how you’ve chosen to structure your business – and whether you have followed the formalities required to protect yourself from personal liability.
Generally speaking, if you operate your business as a corporation or limited liability company (LLC), your business is a separate legal entity from yourself. As a result, the business can file for bankruptcy without putting your personal assets at risk – unless you have failed to treat your business as a separate entity, in which case creditors can often “pierce the corporate veil” and go after your personal assets. Examples of the kinds of conduct that can allow creditors to pierce the corporate veil include commingling personal and business assets or using business accounts to pay for personal expenses.
If you operate your business as a partnership with another person or with other people, you will typically be personally liable for partnership debts. This may not be the case if you operate as a limited partnership or a limited liability partnership.
Finally, if you operate as a sole proprietorship, there is no legal distinction between you and your business, which means that your personal assets will be at risk if you file for bankruptcy due of debts you have incurred in the course of business.
A sole proprietorship is the simplest business formation available and does not require filing any paperwork with a government agency. The SBA indicates that more than 70 percent of all businesses in the U.S. are owned and operated by sole proprietors – and you may be one of them and not even know it. Generally, you are a sole proprietor if you operate a business on your own and have not taken any steps to establish a separate business entity. Examples of people who typically operate as sole proprietors include music teachers, handymen or women, painters, nannies, lawn care professionals, housecleaners, freelance writers, and consultants.
Small Business Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often used by small businesses and small business owners who want to cease operations and eliminate debt. It is also known as a liquidation bankruptcy, as all of the debtor’s assets are liquidated (sold) and the proceeds used to pay off outstanding debts. For most filers, the most attractive part of Chapter 7 bankruptcy is the fact that it typically concludes with the discharge of all remaining debts. Importantly, if you are a sole proprietor and filing for Chapter 7 (meaning that your personal assets are at risk), there are significant exemptions that can prevent creditors from seizing all of your property. In fact, there are tools of trade exemptions that would protect your work tools so that you could continue in businesses while still obtaining a discharge of your debts.
Small Business Chapter 11 Bankruptcy
Chapter 11 bankruptcy is a type of reorganization bankruptcy that allows businesses to continue operating as “debtors in possession” while being protected from collection activity like lawsuits, repossession, or foreclosure. In addition, businesses that are “in” Chapter 11 are often able to obtain financing on favorable terms, as new creditors can receive priority status. Chapter 11 involves entering into a payment plan with the bankruptcy court through which creditors are paid back over time.
Small Business Chapter 13 Bankruptcy
Chapter 13 is a type of bankruptcy that may only be filed by individuals, so only sole proprietors can use Chapter 13 with regard to business debts. In Chapter 13 bankruptcy, the individual proposes a repayment plan to the court that will last anywhere from 3 to 5 years. During this time, he or she is protected from collection activity from creditors. Chapter 13 is a good option for sole proprietors who are in significant debt and have significant assets. If debtors in this position were to file for Chapter 7, the trustee would likely liquidate their assets in order to pay off creditors. In Chapter 13, however, sole proprietors are able to keep their assets, stay in business, and pay their debts off during the period of the repayment plan.
Call Today to Speak with a Small Business Bankruptcy Lawyer
It is important to remember that filing for bankruptcy does not necessarily mean the end your business. In fact, in some cases, filing for bankruptcy will significantly improve your or your businesses financial position as soon as your case has concluded. If you are a small business owner who is struggling with debt, you should discuss your options with a bankruptcy attorney as soon as you can. There are various types of bankruptcy that may be available to you, each of which has its own pros and cons, and the advice of an attorney can help you determine the right path for you. To schedule a free consultation with a bankruptcy lawyer, call us today at 866-780-4855 or send us an email through our online contact form. We are qualified to assist clients in the states of Arizona, Colorado, and Nevada.