If I Own a Business, Can I File for Personal Bankruptcy?
Many business owners in Florida are struggling financially as a result of COVID-19 closures and the continued risks of the coronavirus pandemic. At the same time, many individuals are also struggling with debt and trying to determine their options for managing debt after losing a job or experiencing a significant business downturn. Although some business owners in Florida have managed to avoid significant financial concerns during the pandemic, most have experienced at least some difficulties, whether financial or otherwise. If you currently own a business and debt has become a major issue, you may be wondering about bankruptcy options. More specifically, if you own a business, can you file for personal bankruptcy?
The answer to that question depends in part on your personal eligibility for bankruptcy, but for some business owners, personal bankruptcy will be the same as a business bankruptcy under the U.S. Bankruptcy Code. We will explain in more detail.
If You Are Eligible for Personal Bankruptcy, You Can File
Just because you own a business does not mean that you cannot seek out options for personal bankruptcy. For example, if you want to file for Chapter 13 bankruptcy in order to reorganize your personal debts and to avoid foreclosure on your home but you are concerned about the LLC or corporation in which you are a member or a shareholder, you should know that your personal bankruptcy will not put the business at risk in most cases. Most types of businesses are structured so that they are separate entities from the owner or owners, and as such, when an owner has a personal financial issue, the business does not become at risk. Similarly, if there is a financial problem with the business, in most situations the business owner will not be held personally liable.
On the flip side, if you own a business that is struggling and you want to file for business bankruptcy, as long as the business is its own distinct entity, filing for a Chapter 7 or Chapter 11 business bankruptcy will not mean that the individual business owners will be personally in bankruptcy. However, things will be very different if the business you own is a sole proprietorship.
Sole Proprietorships and Consumer Bankruptcy
If you own a business that has been structured as a sole proprietorship, a personal bankruptcy will also be a business bankruptcy and vice versa. Unlike other business structures, a sole proprietorship and the owner are, in effect, the same legal entity. As such, if the owner of a sole proprietorship wants to file for consumer bankruptcy, his or her business will also need to be part of that bankruptcy proceeding. Then, at the same time, if the sole proprietorship is struggling and the owner wants to file for business bankruptcy, the owner will file for consumer bankruptcy in order to manage the debts of the business. In addition, if the majority of the debts are related to business activity you could file a non-consumer bankruptcy which does not require the application of the means test qualifications in order to file for bankruptcy.
One clear benefit of bankruptcy for a sole proprietorship is that, unlike other types of business bankruptcy, it may be possible to file for a Chapter 13 bankruptcy. By filing for Chapter 13 bankruptcy, a sole proprietorship owner can reorganize personal debts and debts of the business without having to pay the costs associated with a Chapter 11 bankruptcy.
Contact a Bankruptcy Lawyer in Orlando
If you have questions about consumer bankruptcy in Orlando, one of our Orlando bankruptcy attorneys can help. Contact Anderson & Ferrin for more information.