Because of the economic recession I’m seeing lots of small business owners in the Southern California area who are considering bankruptcy in order to cope with their excessive debt load. They want to know how filing bankruptcy will affect their business.
If You Are A Sole Proprietorship
If your business is a sole proprietorship (i.e. “John Doe d.b.a. John’s Bakery”) there’s no separation between your personal debts and assets and your business debts and assets. All your debts would be “personal” debts. There’s no difference between your personal credit card debts and the debts incurred from taking a potential client out to dinner. You would have to list all the debts on your bankruptcy petition.
Likewise, assets of your business are considered to be your personal assets. And any assets that you do not have a California exemption for could be claimed and sold by the trustee, then the proceeds from the sale would be distributed to your creditors.
Please note that any account receivables or any other property with a potential resale value are considered to be estate assets.
If You Are A Corporation
If your business is incorporated, the shares of that corporation are your assets and you have to provide a justifiable valuation on the corporate assets.
Often people will object and say, “But these aren’t my assets. These assets belong to the corporation.” That’s true. But you’re an owner of the corporate stock. The trustee will want to step into your shoes and exercise rights over that stock if there’s any value in the corporation.
Additionally, you need to recognize that in a large number of cases when the owner of the corporation purchases on credit, they are requiring that the owner also be a personal guarantor for corporate purchases. Therefore, you may be personally responsible for your corporation debt.
Finally, be aware that the trustee may insist that the business be closed down, and you’ll have to find another line of work. This is more likely to happen if there are business assets with value or receivables.
As always, you should seek the advice of a knowledgeable bankruptcy attorney as to how this applies to your specific situation.
Perhaps you have some questions. You can reach my by phone at 760-523-9090. Or just click on the ORANGE “Contact Me” button at the top of your screen. I’ll contact you back and make arrangements to meet with you.
Talk with me. I’ll treat you like a friend.
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