Individuals that need to file for bankruptcy protection often wonder what will happen to their business. It is worth noting that although partnerships, limited liability companies, and corporations may file for bankruptcy protection, it is commonly an individual who owns a business that files the bankruptcy. What happens to a business in a personal bankruptcy depends on the status and nature of the business and whether a separate entity was validly formed to conduct that business
In any bankruptcy, you must list all of your assets and debts. When it comes to your business, this means you must list your businesses and its value in the bankruptcy schedules. Consider the following example regarding a sole proprietorship:
Roger operates an automotive repair business as a sole proprietor under a trade name. Roger’s income is primarily derived from his repair services, but he also owns some inventory which he sells to customers. Roger begins to struggle financially and has both personal debts and debts directly related to the operation of his auto repair business. He decides to seek protection under Chapter 7 of the Bankruptcy Code.
Since the business is a sole proprietorship, the tools, inventory, accounts receivable, and all other assets of the business are considered Roger’s personal assets. As a result, Roger must list all of his personal and business assets in his bankruptcy schedules. The effect of the bankruptcy on Roger’s business depends on the value of his business assets. He may be able to protect some of the tools and equipment he uses in the operation of his business as tools of the trade, but he runs the risk of losing any unprotected property in the bankruptcy.
If you are considering filing bankruptcy, it is best to obtain legal advice early in the process to properly protect your business. Contact attorney Preston Gardner, Arizona bankruptcy lawyer, to schedule a free bankruptcy consultation.