Just like an individual, a small business can easily fall on economic hard times. For small business owners, deciding whether to keep going during a financial rough period or close up shop can be a difficult decision. Often, a struggling small business will affect the owner’s personal finances. For some small businesses, bankruptcy can help by eliminating debt or making it more manageable.

At the Law Offices of Melanie Tavare, we work with small business owners in the San Francisco Bay area to advise them on how bankruptcy can help them and their business. If you are the owner of a struggling small business, call us today at (510) 255-4646 or contact us online to see how we can help.

Important Factors to Consider

• Amount of your assets and liabilities. If your assets are equal to or greater than your liabilities, you may want to consider selling your business and avoiding bankruptcy.
• Whether your business is making a profit. If your business is currently making a profit and your debts are from a rough period in the past, remaining open and using the profit to pay your debts or selling your business may be viable options to avoid bankruptcy.
• Whether you want to stay in business is an important consideration in bankruptcy.
• Type of business –Whether your small business is a corporation, partnership, limited liability company (LLC), or sole proprietorship may affect your options in bankruptcy.
• Whether you are personally liable for your business debts – Some business types, such as a limited liability company, shield the owners from being personally liable for the debts of the business. However, often the lenders of credit still make the owner sign contracts making them personally liable on the debt in addition to the LLC. Others types, such as a sole proprietorship, do not. Whether you are liable for your business debts may affect whether bankruptcy is the right option for your business, and – if so – what type of bankruptcy is best.

How a Chapter 7 Bankruptcy Can Help Small Business Owners

Sole Proprietorship

If you are a sole proprietor, you may be personally liable for your business debts. Because a sole proprietorship is not a separate legal entity, Chapter 7 Bankruptcy can help you wipe out not just your business debts, but your personal debts as well. Using California’s system of property exemptions, you can protect some of the assets of your business. This is a good option for small business owners who do not have many assets, and Chapter 7 Bankruptcy may help you keep your small business running.

Partnerships and Corporations

If your business is a partnership or corporation, it is a separate legal entity. Unlike a sole proprietorship, there is no discharge of the owner’s personal debts and no property exemptions. For partnerships and corporations, a Chapter 7 Bankruptcy means that the business will likely close and its assets will be liquidated in order to pay off any creditors. If the business is a partnership, general partners may still be personally liable for any outstanding debt. However, if the business is a corporation, owners are generally not personally liable for a debt unless they were a guarantor.

Limited Liability Companies (LLCs)

Chapter 7 Bankruptcy for an LLC works similarly to Chapter 7 Bankruptcy for a corporation in that the business will close and its assets will be sold and the proceeds distributed to its creditors. In general, Chapter 7 Bankruptcy helps the owners by making the bankruptcy trustee responsible for liquidating the business and paying off its creditors. Although a Chapter 7 Bankruptcy for an LLC does not affect the personal debts of the owner, an owner is generally not personally liable if the assets of the business were not enough to pay its debts.

How a Chapter 13 Bankruptcy Can Help Your Small Business

Chapter 13 Bankruptcy is only available for individuals, so if you are the owner of an LLC, corporation, or a limited liability company, Chapter 13 Bankruptcy is not an option. However, because a sole proprietorship is not a separate legal entity, Chapter 13 Bankruptcy is a helpful tool for sole proprietorships.

For sole proprietorships with significant assets, Chapter 13 Bankruptcy may be preferable to Chapter 7 because the Chapter 13 payment plan allows you to keep those assets and reorganize your debt to make it more manageable. If a Chapter 13 debtor successfully makes payments over a period of time, their remaining unsecured debts are discharged. Chapter 13 can help a sole proprietor not just with their business debts, but with any personal debts as well.

Contact Your Small Business Bankruptcy Attorney Today

If you own a small business and are struggling with unmanageable debt, contact the Law Office of Melanie Tavare today. Our attorney has experience in helping small business owners in the San Francisco Bay area navigate through bankruptcy. Contact us online or call at 510-255-4646 for a small business bankruptcy consultation today.