As an Asheville bankruptcy lawyer, I frequently sit down with people who own a small business which is struggling to make ends meet. It is important for the small business owner to understand their rights both in bankruptcy and outside of bankruptcy before calculating their next best financial move.
How is the business organized?
If you have filed documents to organize your small business as a corporation or limited liability company, the law will treat your business as a separate entity from you personally. The business can become liable for debts on its own, and the company can own property separate and apart from what you own personally. If your business has been organized, we will place a value on the company’s assets should you decide to file a personal bankruptcy case. Very frequently, you are able to protect the assets of the company by utilizing North Carolina bankruptcy exemptions.
If you have not organized your business by filing documents, the law will treat both your property and the property used in the business as being owned by you personally. Again, we may be able use the North Carolina exemptions to protect that property from the reach of your creditors.
Why would I need a personal bankruptcy case to discharge business debts?
Small business owners are almost always to asked to sign personal guarantees when their company borrows from a creditor. Lenders require personal guarantees because a debt listed only in a small business’ name might be eliminated by simply dissolving the company. The personal guarantee establishes personal liability for the owner of the business even after the company goes out of business.
Chapter 7, 11, or 13
Would you be able to recreate your small business simply by dissolving your old company and starting a new one with the expertise you have gained over the years? If so, a Chapter 7 bankruptcy to eliminate old debts may be the thing you need to make the small business profitable. In this type of case, we are generally able to protect all of the business’ assets by utilizing exemptions, and the business would continue to operate as it has in the past.
If recreating your small business would be difficult because you need a large, unencumbered asset or assets to be profitable in your business, you may want to consider a Chapter 11 or Chapter 13 case to reorganize the company’s debts and return to profitability.
Each bankruptcy case is different. Ready to figure out your options? I would be pleased to sit down with you during a free, initial bankruptcy consultation.