As a business owner facing financial difficulties, you may be stressed over the best way to put an end to this stressful situation. However, you may be in doubt as to whether you may file for personal bankruptcy while owning the business or if it is best for the business to go into bankruptcy instead. These are complicated decisions that may best be thought through with an experienced Long Island small business bankruptcy lawyer who can help you untangle the financial issues you are having in the most appropriate way. In the meantime, read on to find out more about filing for personal bankruptcy while owning a business.
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Advantages of Filing for Personal Bankruptcy
As a business owner, filing for personal bankruptcy allows you to:
- Protect yourself from having your personal assets taken to pay for business debts
- Quickly start a business again with a new business entity that will not have any debt
Advantages of Filing for Business Bankruptcy
The majority of business entities allow their owners to have limited liability for the debts incurred by the business. Having limited liability means that you cannot be forced to pay the debts incurred by the business and it is only the business entity that can be made to pay for these debts.
However, there are cases in which an owner may have agreed to personally guarantee a loan. If this is your case, let your bankruptcy attorney tell you how to proceed. Yet, it is important to know that most creditors these days do require business owners to provide a personal guarantee of business debts so that, should the business lose money, the creditor will still be able to collect from the business owner.
If this has happened to you, your best option moving forward is to file for personal bankruptcy and to protect your personal assets from being seized by business creditors.
What Happens Before Filing for Bankruptcy?
Concluding that there is no other way out of the hardships that your business is facing than filing for bankruptcy is no easy decision. It means admitting that the business has run out of money or assets to pay its creditors.
As mentioned above, unless you have personally guaranteed the business’ debt, creditors must collect from the business and since the business has nothing of value, the creditor will get nothing.
When you as the owner guarantee the business’ debts, creditors may levy your bank accounts and any wages to attempt to collect what the business owes them.
How Does Bankruptcy Help?
When there is a bankruptcy, creditors will no longer be able to levy any garnishments on your bank accounts and other income because it discharges all of your personal liability for the business’s debts.
If you are interested in continuing with your business, your best option is to file a personal bankruptcy so that you may keep the funds in your bank account and other assets and then go on to create a new business entity that will no longer be saddled with debt. This new business venture will give you an opportunity to start fresh, with no debts. However, before filing for personal bankruptcy you should talk to your lawyer about any possible consequences since bankruptcy can impact other areas of your life for some time.