Filing for Personal Bankruptcy When You Own a Business

Personal financial struggles can happen to anyone, even successful business owners. If you’re thinking about filing for bankruptcy as an individual, you might be wondering what effect, if any, taking such a step will have on your business. Depending on the type of business structure and bankruptcy chapter, the implications can vary significantly. 

Sole proprietorships are not distinct legal entities from the individuals who own them. This means that creditors can seek liquidation of business assets from a sole proprietorship in a Chapter 7 bankruptcy, just as they could with other nonexempt personal assets. However, personal labor cannot be liquidated and Georgia does have a wildcard exemption that might allow a business owner to maintain equipment used in their business. Under Chapter 13, you may continue operating your business while repaying debts through a structured repayment plan. This can provide an opportunity to stabilize finances and maintain your customer base.

In standard partnerships, the partners are personally liable for business debts. However, if an individual has their personal debts discharged through Chapter 7, the partnership’s liabilities remain. This could mean that if one partner files for personal bankruptcy, the other partner(s) are responsible for paying the full amount of the business debt. Accordingly, partnership agreements frequently mandate dissolution of the partnership if one of the members files for bankruptcy. Unless exempted, a bankruptcy filer’s partnership stake could also be liquidated in a Chapter 7 proceeding. 

Corporations, including LLCs, are separate legal entities from their owners. Filing for personal bankruptcy does not automatically involve the business unless the owner has personally guaranteed business debts. If personal guarantees are in place, creditors may pursue the business owner individually. While an owner’s share of the company can be taken to pay off creditors, the company itself remains unaffected unless it is also insolvent. Of course, corporations and other types of businesses corporations might face reputational damage or financial strain if the owner’s bankruptcy disrupts operations.

Filing for personal bankruptcy as a business owner requires careful planning. Consult a bankruptcy attorney as soon as possible to assess the impact on both personal and business assets. At Jeff Field & Associates, we help Georgia small business owners explore strategies for protecting essential business tools and equipment. We’ll advise on the most appropriate bankruptcy chapter for your situation and help devise a strategy to restore your financial stability. 

To discuss your situation and options with an accomplished bankruptcy lawyer, please call 617-232-5950 or contact us online. Our offices are in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Scottdale.