Can I Lose My Small Business if I File for Personal Bankruptcy?

Filing for personal bankruptcy is an extremely complex process, and it is essential for anyone considering it to speak with an experienced bankruptcy lawyer about the different types of bankruptcy and their effects. For small business owners in the Oak Park area, the prospect of filing for consumer bankruptcy can raise many questions and concerns about how a personal Chapter 7 or Chapter 13 bankruptcy filing will affect the business. If you are wondering about the risk of losing your small business if you file for personal bankruptcy, there is no simple answer to the question based on existing bankruptcy law. Rather, the answer will depend upon a few key factors, including the type of business structure you are using for your small business and the type of bankruptcy you are considering.

How is Your Small Business Structured?

When you are considering whether a personal bankruptcy filing could result in you losing your small business or being forced to close the doors of your small business, the first question you will need to answer is this one: How is your small business structured?

Many small businesses are structured as sole proprietorships. If this is true for you, it is critical to understand that a sole proprietorship is not a distinct entity from you, the business owner. As such, you and your business are one and the same. What does this mean for you if you want to file for personal bankruptcy? You will also be filing for business bankruptcy if you have a sole proprietorship. However, you should not immediately assume that you will lose your business and be required to close its doors if you file for consumer bankruptcy. Whether or not your business will need to close will depend upon the type of bankruptcy you are planning to file.

If your business has nearly any other type of structure—including a partnership, a limited liability company (LLC), a C-corp, or an S-corp—your small business is an entity that is separate from you as a person. As such, if you file for consumer bankruptcy, your business will not also have to file for bankruptcy and, most likely, your personal bankruptcy case will not impact the ability for the business to continue operations.

What Type of Bankruptcy are You Considering?

If you do have a small business that is structured as a sole proprietorship, you may be able to keep your business open and running if you file for Chapter 13 bankruptcy. Since Chapter 13 bankruptcy is a type of reorganization bankruptcy, you can restructure your debts through a repayment plan that lasts from three to five years, typically. With this kind of reorganization bankruptcy, you will still need to include your business and personal debts (since they are technically the same), but you will not need to close your business.

Chapter 7 bankruptcy is different. If you file for personal bankruptcy under Chapter 7 and have a sole proprietorship, all of your non-exempt business assets will need to be liquidated along with personal ones.

Contact an Oak Park Bankruptcy Attorney for Assistance

If you have any concerns about filing for consumer bankruptcy, one of our experienced Oak Park consumer bankruptcy lawyers can speak with you today to answer your questions and to discuss your options. Contact the Emerson Law Firm for more information about the consumer bankruptcy process in Illinois.



See Related Blog Posts:

Can I Still Seek a Bankruptcy Modification Under the CARES Act?

What Happens If a Creditor Violates the Automatic Stay After a Bankruptcy Filing?

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