What business debts can be discharged in bankruptcy?
Eight out of ten small businesses will ultimately fail, according to Bloomberg. Running a successful small business in America is challenging and there is no defeat in admitting that your business is struggling. Business owners overwhelmed by debt may wish to consider filing for Chapter 7 bankruptcy. Depending on your business structure, Chapter 7 bankruptcy may offer a way for your business to be saved or offer a means of liquidating should you elect to close the business. Our Beavercreek, Ohio Chapter 7 bankruptcy lawyers offer an overview of bankruptcy for businesses below.
Chapter 7 Is Best for Sole Proprietors
Chapter 7 is not the right answer for every type of business. On the contrary, for most LLCs or corporations, Chapter 7 will not be beneficial as it will usually not result in discharge of the business’s debts. However, for sole proprietors or any business owner who is personally responsible for paying the business’ debts, Chapter 7 may be the right choice.
To assess whether Chapter 7 will benefit you, first determine whether you are liable for the business’ debts. If you have signed a personal guarantee to pay rent or other debts of the business, then you have personal liability. Alternatively, if you are a sole proprietor, the business’ debts will be treated as if they were your own. In either of these scenarios, Chapter 7 might be the right option.
Sole proprietors can file for bankruptcy in their personal name and will receive discharge of all qualifying debts, including those incurred by the business. You will be able to protect a number of assets owned by you personally and the business through the Chapter 7 bankruptcy exemptions. Using this method, you could potentially salvage the business and continue on once the bankruptcy is complete.
If your business is either a corporation or an LLC, then the business entity can file for Chapter 7 bankruptcy, but it will not receive a discharge of its debts. Chapter 7 will allow for the business to be liquidated, which could be necessary if you are unable to otherwise sell the business or its assets. Business owners may then need to personally file for bankruptcy if they could otherwise be held accountable personally for any business debts. Contact a bankruptcy attorney for more information as to whether bankruptcy is the right option for you.