Owning and running a small business is a dream come true for many. Unfortunately, that dream can become a nightmare when it becomes impossible to pay the bills. The business problem can also carry over into the owner’s personal life.
How was the business established?
• In a sole proprietorship, the business is considered an extension of the owner, who must file for a personal bankruptcy.
• All partnerships must have at least one general partner, who is legally liable for the debts of the partnership. It’s possible that in a chapter 7 bankruptcy, when the sale of assets will not pay the debts, the trustee could sue the general partner(s). Limited partners are generally not personally liable.
• Corporations can file for either chapter 7 (liquidation) or chapter 11 (reorganization) in their own right.
Chapter 7 Bankruptcy for Business
• Sole proprietors wipe out business and personal debt with a personal bankruptcy. Exemptions can be used for the protection of business assets. After the debts have been discharged, the business can remain in operation.
• For partnerships, LLCs or corporations, chapter 7 is the easiest way to liquidate the business. The trustee will be responsible for selling the assets of the business and paying the creditors. The owner(s) can start to get their lives back on track.
• However, the business owner may still be responsible for some debt. The business owner may have had to assume legal liability for certain debts, such as a loan to the business, and would need to file for personal bankruptcy for that debt.
Chapter 11 Bankruptcy for Business
• Small business owners may feel anxious about the costs and duration of chapter 11 bankruptcy after hearing about major corporate bankruptcies. However, small businesses file most chapter 11 bankruptcies.
• Chapter 11 requires a court-approved plan of reorganization. The debtor must show how reduced obligations and modified payment terms would allow the business to once again become profitable.
• Business assets can be sold in order to downsize the business and/or pay debts.
• The Bankruptcy Code includes certain special provisions for small businesses that reduce costs and fast-track the process. Consult a business bankruptcy attorney in Berwyn, IL to learn more.
Talk to an experienced business bankruptcy attorney in Berwyn, IL to discover if bankruptcy is best for your business. Schottler & Associates focus on getting a fresh start for their clients. Contact them to schedule a free consultation.