Bankruptcy for Small Business
The Law Office of Douglas L. Barrett, LLC, is a full service bankruptcy law firm. We help all types of business file for Chapter 7, Chapter 11 and Chapter 12 (Family Farmer) bankruptcy. We have helped hundreds of small business owners over the years deal with difficult financial problems inside and outside of the bankruptcy process.
Bankruptcy is one of the few laws set out in the U.S. Constitution. The reason we have bankruptcy is to allow entrepreneurs to take risks, to build and grow business, and hire employees - all with the assurance that if the business were to fail there will be some safety net to help them deal with the ramifications of such a failure. Since the founding of the country the bankruptcy laws have expanded an changed to meet the needs of the modern business community. Today there are a number of options inside and outside of bankruptcy that may help with your current financial condition. The way debts effect you and your business is based upon how your business is set up.
Sole Proprietors and Partnerships
If you're a sole proprietor you and your business are legally one and the same, therefore you're personally responsible for all debts. If there isn't enough money in the business to pay these debts, creditors can take your assets including personal assets.
In a general partnership, each partner is personally liable for the entirety of the business's debts (and any partner can usually bind the entire partnership to a business deal). Because of this, if there isn't enough money in the business to pay the debts, and your partners are broke the creditors can take your assets including personal assets to pay towards all of the business's debts, not just your share.
Corporations and Limited Liability Companies
If your business is organized as a corporation or a limited liability company (LLC), your personal assets are usually protected from business creditors --unless you specifically gave up your so-called "limited liability" protection. Unfortunately, you may have done so if a bank or other creditor required a personal guarantee and/or personal security before loaning you money, leasing you space, or extending credit. It's a common practice. Such personal guarantees undo your limited liability, allowing the creditor access to your assets including personal assets if the business can't cover the debt.