It’s possible for an individual to need to file for bankruptcy even if their business is successful. The business may generate enough income to pay a salary, but an event in your personal life can outstrip what you make from your business. This leaves you in a precarious financial position that’s not easy to get out of.
Bankruptcy is a valid option to eliminate your personal debt while letting you keep your business, provided it’s been incorporated. You can get back on track with your finances and move forward with your business. Here’s a look at how it works.
Table of Contents
Your Business Won’t Be Affected by Personal Bankruptcy If it’s Incorporated
Everyone’s personal assets are considered an estate for the purpose of defining what you own. In the event your business is incorporated, it’s viewed as a separate entity from your estate and will survive a personal bankruptcy. Some of the corporate structures include sole proprietorship, partnerships, cooperatives, and profit or non-profit
A sole proprietorship won’t survive bankruptcy as it’s not considered separate from your estate. The debts incurred by the business are discharged, and a new business number is issued to you after the bankruptcy trustee has wound up the proceedings.
A partnership is typically also exempt from a bankruptcy proceeding when one partner files for personal bankruptcy. However, this isn’t guaranteed, and getting help from a bankruptcy lawyer for a partnership is advisable.
Proceeding With a Personal Bankruptcy as a Business Owner
It’s highly recommended that a business owner who’s looking into personal bankruptcy get professional advice from a licensed insolvency trustee (LIT) for advice. There are alternatives to bankruptcy that help reduce your debt and make it manageable once again. These options help you avoid filing for bankruptcy and dealing with issues that add more time to your ability to recover after a discharge.
What to Expect After Deciding to File Bankruptcy
In the event that bankruptcy is the best option to resolve your debts, you need to review your debts to determine which ones you are personally responsible for. If you’ve personally guaranteed loans, you can include them in your personal bankruptcy, although they’re likely to affect the operation of your business in terms of getting funding afterward.
Bankruptcy is the final solution to resolving debts that you’re unable to pay. It impacts your credit score for years to come, although the passage of time and steady debt management help improve your score. However, taking the legal option to become debt-free is one that alleviates your stress and helps you focus on organizing your finances once again.
Get Professional Help for Your Personal Bankruptcy
Bankruptcy is a complicated process on its own, and it becomes more complex when you own a business. In order to reach a successful closure with few complications, you should get help from an LIT. The LIT can advise you as to the best options for reducing your debt load, how to preserve your business, and help you move forward with your life afterward.