Will a Personal Bankruptcy Negatively Affect My Business?
April 26, 2023
There’s never an ideal time to file for bankruptcy, regardless of your situation. It will always be a hard decision where you’ll have to weigh both the costs and benefits carefully. This becomes especially difficult if you’re considering filing as an individual but wonder, “Will bankruptcy negatively affect my business?” or “How can I protect my business during personal bankruptcy?” These are important questions to answer, and it can be incredibly helpful to meet with a bankruptcy attorney for advice.
For legal assistance in the Alexandria, Arlington, Fairfax, Manassas, Prince William, Loudon, or Falls Church, Virginia area, contact our reliable team at Vivona Pandurangi, PLC, to learn about your options. We have the resources to provide for your best interests and help you look toward a brighter future.
Filing for Personal Bankruptcy While Owning a Business
Just because you’re considering filing for bankruptcy doesn’t automatically mean that your business will suffer too. The biggest consideration to take into account is the legal structure of your business, as this will inform how much a personal bankruptcy declaration under Chapter 7 will affect it.
In general, there are four business structure options: sole proprietorship, limited liability company (LLC), partnership, and corporation. Of these, a sole proprietorship will expose you to the most negative impacts during bankruptcy, though it’s important to understand the structure of all models since they all risk being affected.
How Do I Know if Bankruptcy Is a Good Option?
The best way to thoroughly evaluate your options for bankruptcy is to meet with an experienced lawyer who can look at the details of your case and educate you on your options. If your business is set up as a sole proprietorship it will be affected by a Chapter 7 filing since your business and personal assets are considered the same for tax purposes. This means you’ll likely have to liquidate your business assets per the terms of the filing.
If your business is set up as a partnership, LLC, or corporation, the other partners may force you to sell your shares to them. In other cases, a trustee may be legally obligated to use your business assets to pay off creditors.
How Can I Protect My Business?
One way to protect a business from the negative effects of bankruptcy is to file for Chapter 13 instead of Chapter 7. With Chapter 13, you’ll establish a repayment plan with the courts that may include debts from your business, and this way, you can avoid liquidating assets. You will be required to stick to the repayment plan for a period of three to five years, but in the end, it may mean that you’re able to salvage your business and your personal finances.
You may also consider selling or dissolving your business before declaring bankruptcy, but this should only be done after you’ve examined all your options along with your attorney. One last option is to have your business file for bankruptcy instead of or alongside your personal filing. This may be a good option if the majority of your debt obligations stem from your business, but again, this should only be considered after meeting with a legal expert. In the case where you would be double filing, it’s important that you use two different codes. For example, as an individual, you could file for Chapter 7 while your business filed for Chapter 11.
Let Vivona Pandurangi, PLC Guide the Way
If you’d like to hear more about your options for filing for bankruptcy and how you can avoid hurting your business, reach out to our team at Vivona Pandurangi, PLC. We have two offices to serve our clients, one in Falls Church, Virginia, and the other in Alexandria, where we’re able to help those throughout the area in Arlington, Fairfax, and Manassas.