Personal bankruptcy is a daunting prospect for anyone, especially for business owners. When you file for bankruptcy, you are essentially admitting to being unable to pay your debts. And while bankruptcy can offer a fresh start, it can also mean losing your business assets. In this article, we’ll explore what happens to your business assets during personal bankruptcy and how you can protect them.
Understanding Personal Bankruptcy
Personal bankruptcy is a legal process that allows individuals to eliminate or repay their debts under the court’s protection. The two most common types of personal bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy involves liquidating assets to repay creditors. This means a trustee will sell your non-exempt assets and distribute the proceeds to your creditors. Any remaining debts will be discharged, but you will lose any assets that are not exempt.
Chapter 13 bankruptcy involves creating a repayment plan to pay back your debts over three to five years. You get to keep your assets but must repay your creditors according to the plan.
What Happens to Your Business Assets?
If you own a business, your assets may be considered both personal and business assets. This means that they may be subject to liquidation in Chapter 7 bankruptcy.
The first step in protecting your business assets is to separate them from your personal assets. This means creating a separate legal entity for your business, such as a corporation or limited liability company (LLC). By doing this, you can limit your personal liability and protect your personal assets from business debts.
If you have already filed for personal bankruptcy and have not created a separate legal entity for your business, your business assets may be liquidated. If your business is a sole proprietorship, your personal and business assets are considered one and the same, and both may be subject to liquidation.
Exemptions
In both Chapter 7 and Chapter 13 bankruptcy, certain assets are exempt from liquidation. These assets are considered necessary for your basic living needs or your ability to earn a living.
Each state has its own set of exemptions, so it’s important to understand what exemptions are available in your state. In some states, business assets may be exempt under certain circumstances.
For example, certain types of business property, such as tools and equipment, may be exempt up to a certain value in Texas. In California, business assets may be exempt if used primarily for business purposes.
Working with an experienced bankruptcy attorney who can help you understand what exemptions are available to you and how to protect your assets is important.
Protecting Your Business Assets
There are several strategies you can use to protect your business assets during personal bankruptcy:
- Create a separate legal entity for your business, such as a corporation or LLC, to limit your personal liability and protect your personal assets from business debts.
- Keep detailed records of your business assets and finances to show they are separate from your personal assets.
- Use exemptions to protect your business assets. Work with an experienced bankruptcy attorney to understand what exemptions are available in your state and how to use them to your advantage.
- If you have already filed for bankruptcy and have not created a separate legal entity for your business, consider converting your business to a corporation or LLC. This may help you protect your business assets from liquidation.
Conclusion
Personal bankruptcy can be a difficult and stressful process, especially for business owners. But by understanding what happens to your business assets during bankruptcy and taking steps to protect them, you can minimize your losses and start rebuilding your financial future. Remember to work with an experienced bankruptcy attorney who can help you navigate the process and protect your assets.
For more than 25 years, the Law Offices of Stephen B. Kass, P.C. has offered experienced legal counseling in the areas of taxation ( tax settlements, offers, and litigation) and bankruptcy, including Chapter 11 Reorganization filings for businesses with high tax debt as well as Chapter 11 filings for individuals with substantial tax liabilities. We are one of the few firms that deal with the IRS, NYS, the United States Attorneys, and Attorney Generals on tax matters on a regular basis. If you need a business bankruptcy attorney in New York, look no further! Get in touch with us and let’s talk!
