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Should I File for Business or Personal Bankruptcy?

This question often arises when a business is a sole proprietorship or a small, incorporated business for which personal guarantees were signed in order to secure commercial loans. In order to come up with the best possible answer, you need to consider the following questions:

  • Are my financial problems due to my business or my personal finances?
  • If it is the business, have I kept my business and personal finances wholly separate?
  • If it is personal, is my business doing well enough that I can and want to keep it running?
  • What is my relationship with my creditors and how likely are they to take aggressive steps to seize my personal assets (if business creditors) or business assets (if personal)?

These and other questions related to the unique nature of your situation should be evaluated honestly in order to make a decision. Your bankruptcy attorney can help you come up with the answers and provide guidance on what steps to take based on your responses.

To keep your business running, personal bankruptcy may be the answer

It is possible to keep your business safe and active during personal bankruptcy proceedings, depending how scrupulous you’ve been about keeping your personal and business funds, debts and assets separate. Even though the personal bankruptcy trustee will know you have a business and consider it an asset, it may not be considered worth dissolving in order to repay your personal debts. However, you should not assume this would be the case — even if your business itself isn’t considered valuable, it may possess equipment or other assets that the trustee considers worth dissolving to pay back creditors. Let your attorney help make this determination rather than making any assumptions on your own.

You may be tempted to hide some business assets from the bankruptcy trustee. Don’t do it! The courts are aware of all possible tricks, such as signing over assets like vehicles or offices to a friend, partner or family member. These antics can lead to fraud charges and you may wind up losing what you might have retained by being honest with the bankruptcy trustee and the court.

The best way to make a decision regarding a declaration of personal versus business bankruptcy is to speak to a qualified bankruptcy law firm that handles both personal and commercial bankruptcy proceedings. An attorney can help you choose the best possible way to regain control of your finances while protecting your business and/or personal assets from eager creditors.

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