Most small business owners have to take a risk to get started. You need equipment or money before you can make money. When the income is outweighed by the debt, you may find yourself facing a small business bankruptcy.
Despite what you’ve read about filing business bankruptcy, you can quite often accomplish the same result through a personal bankruptcy by filing a Chapter 7 or Chapter 13 bankruptcy, and dissolving the small business—usually a Limited Liability Company or S-Corp.
Personal Liability In Small Business Bankruptcy
When most small business owners take on business debt, they sign as an officer or member of the small business, and then again personally. This guarantees the lender that either the business or the individual will repay the debt. This is why simply dissolving the business will not eliminate the debt from your life—you’re still on the hook personally. This means creditors for the business can come after your personal assets: home, vehicles, savings, etc.
Business Assets and Liabilities
When you file a personal bankruptcy and include business debt, you’ll also need to provide income and loss statements for the business for the year prior to filing. Your Charlotte bankruptcy attorney can assist you with putting these together, if an accountant has not already done so. You’ll also need to list all assets and debts of the business.
Dissolving The Company
Dissolving an LLC or other small business entity eliminates the potential for creditors to pursue the company for debt—the company no longer exists. If you file a personal bankruptcy in combination with the dissolution, you relieve your personal liability. In essence, you’ve filed a small business bankruptcy by filing personally.
Starting Another Business
Filing a small business bankruptcy does not prevent you from starting a new business. You’ll be subject to the same approval process if you need to take on debt to get the business started, and your personal bankruptcy may be a hurdle from a credit perspective. But entrepreneurs are creative and often find funding outside of traditional means to get new businesses started.
Call today if you have questions about your small business, small business bankruptcy or personal bankruptcy. The call is free, and I’m here to help. 704.479.7747. Or, email me at Charlotte Bankruptcy Lawyer and I’ll reply shortly.