The Interplay Between Personal and Business Bankruptcy

There is usually a sharp distinction between personal bankruptcy and business bankruptcy. Certain types of bankruptcy are only available to individuals, and individual debtors filing for bankruptcy may face stricter qualification requirements than businesses. 

Despite the clear demarcation between these two types of bankruptcy, however, there can be some overlap between them, especially when small and closely held businesses are involved: 

  • If you operate your business as a sole proprietorship, filing for personal bankruptcy also includes your business, since your business is not a distinct legal entity. This means you may have to liquidate many of your business assets, although the trustee may continue to operate your business for a period of time. You may also be able to keep your business running by electing Chapter 13 or Chapter 11 relief. 
  • If your business is incorporated, filing for business bankruptcy usually does not directly affect your personal finances, but it can affect your ability to receive income from your business. 
  • If you own an incorporated business and file for personal bankruptcy, it usually does not affect your business directly. However, you may be required to sell your interest in the business to pay back your creditors. 

These issues are closely related and often occur in tandem. After all, a struggling business usually leads to difficult personal finances, as well. Fortunately, there may be options available that could allow you to avoid liquidating your business and even continue operations during the bankruptcy process. Experienced bankruptcy attorneys understand not only the particularities of business and personal bankruptcy, but also the many ways in which the two processes can influence each other when they occur in tandem or in close succession. 

If you are overwhelmed by debt and considering bankruptcy, contact Certified Specialist in Bankruptcy Law, Max Gardner of The Law Offices of Young Wooldridge for a free consultation.      

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There is usually a sharp distinction between personal bankruptcy and business bankruptcy. Certain types of bankruptcy are only available to individuals, and individual debtors filing for bankruptcy may face stricter qualification requirements than businesses. 

Despite the clear demarcation between these two types of bankruptcy, however, there can be some overlap between them, especially when small and closely held businesses are involved: 

  • If you operate your business as a sole proprietorship, filing for personal bankruptcy also includes your business, since your business is not a distinct legal entity. This means you may have to liquidate many of your business assets, although the trustee may continue to operate your business for a period of time. You may also be able to keep your business running by electing Chapter 13 or Chapter 11 relief. 
  • If your business is incorporated, filing for business bankruptcy usually does not directly affect your personal finances, but it can affect your ability to receive income from your business. 
  • If you own an incorporated business and file for personal bankruptcy, it usually does not affect your business directly. However, you may be required to sell your interest in the business to pay back your creditors. 

These issues are closely related and often occur in tandem. After all, a struggling business usually leads to difficult personal finances, as well. Fortunately, there may be options available that could allow you to avoid liquidating your business and even continue operations during the bankruptcy process.

Topics:  Chapter 11, Chapter 13, Commercial Bankruptcy, Consumer Bankruptcy

Published In: Bankruptcy Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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