If you are the owner of a small business, your personal finances are probably closely linked with your business. Most small business owners invest a large amount of their time and money in trying to ensure their entity is successful. However, when the business faces financial struggles, it means the business owner is likely to experience financial troubles too.
It is common for an owner to obtain business loans by providing the lender with a personal guarantee. It is also likely that you have used personal credit cards or personal savings, including loans from your retirement account, to help keep the business afloat. This can result in you accumulating an overwhelming amount of personal debt, as well as the business debt.
If this is the situation you are facing, it may be time to consider filing a business bankruptcy and/or a personal bankruptcy. If the business is an incorporated entity, it can file its own case. Depending on the circumstances, a Chapter 7 or 11, or a state-court supervised dissolution could allow the business to reorganize its debt and obtain a fresh start, or it could assist with providing an orderly liquidation and closure of the business.
Bankruptcy can also benefit the business owner with eliminating personal debt incurred in connection with the business, in addition to any other personal debt such as credit card and medical bills. If the business is a separate legal entity and it does not file for bankruptcy protection, the owner’s filing typically will not impact the business and it can continue normal operations. It is important to understand, however, that the value of an owner’s stock interest in the business is considered an asset, which means it must be disclosed in the personal filing. Usually a trustee has no interest in the business assets when the small business owner files bankruptcy, but it is vital that you seek legal counsel to determine if or how your filing could affect your business.
If you are a small business owner and have questions regarding how bankruptcy could benefit you and/or your business, contact us for a free consultation.