Distinguishing Consumer and Business Bankruptcy

For many residents and small-business owners in the Chicago area, it may be difficult to determine whether you should file for consumer bankruptcy or for bankruptcy on behalf of your business when you are struggling with debt. I you decide to file for personal bankruptcy, will it impact your business, or vice versa? These are important questions, and we want to address some key issues concerning consumer and business debts, and how you can distinguish them from one another when you are thinking about filing for Chapter 7 bankruptcy.
Should I File for Personal Bankruptcy?
If you own a small business and have both personal and business debts, can consumer bankruptcy allow you to discharge those debts and to get a fresh start on your finances? The answer to this question depends on many different factors, including but not limited to:
  • Way your business is organized;
  • Types of debts you have; and
  • Types of assets you want to protect from liquidation.
Are You and Your Business the Same Entity?
Depending upon how your business is structured, the law might view you and your business as the same entity. In such situations, filing for Chapter 7 bankruptcy will allow you to discharge both personal and business debts. What kind of business structure sees the individual and the business as the same entity? When your small business is organized as a sole proprietorship, then you and your business are the same entity.
What is a sole proprietorship? According to the U.S. Small Business Administration (SBA), a sole proprietorship is “an unincorporated business owned and run by one individual with no distinction between the business and the owner.” As such, as an owner, “you are entitled to all profits and are responsible for all your business’s debts, losses, and liabilities.” Since the individual and the business are “one and the same,” the income of the sole proprietorship is also the income of the individual.
When you have a sole proprietorship and are planning to file for Chapter 7 bankruptcy (if you qualify to file for Chapter 7), then your eligible personal debts, as well as the eligible debts of the business, may be discharged.
Will I Qualify to File for Chapter 7 Bankruptcy?
Qualifying for Chapter 7 bankruptcy is different depending upon whether you are an individual or a business. Generally speaking, an individual who wants to file for Chapter 7 bankruptcy must meet the “means test.” However, business owners seeking bankruptcy protection as a result of business debts do not have to meet the “means test.” As such, in most situations, if a majority of the business owner’s debts are debts from the business (typically 51% or more of the debts), then that business owner will not have to meet the “means test” in order to be eligible to file for liquidation bankruptcy.
Discuss Your Options with an Oak Park Bankruptcy Lawyer
Another important issue to consider is the type of property that you will be able to protect through exemptions. Bankruptcy law is extremely complicated, and it often becomes even more complex when dealing with a combination of personal and business debts. If you have questions about filing for bankruptcy, an experienced bankruptcy attorney in Oak Park can help. Contact the Emerson Law Firm for more information.
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Comments

  1. UnknownApril 12, 2017 at 3:40 AM

    Hello Thanks for Sharing the Information very informative.I will go over your personal situation and explain how bankruptcy may affect your debts, assets and property.Chapter 7 NJ

    ReplyDelete
  2. carryJune 2, 2017 at 12:13 PM

    Hey, nice info!, very informative post.............
    No one needs an attorney to tell them that bankruptcy is a complicated process. However, a bankruptcy attorney can provide the assistance necessary to get through this stressful process.
    Corporate Bankruptcy

    ReplyDelete

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