When your business is in financial trouble, you have to do everything you can to bring it back around and get it back on its feet again. That’s why so many entrepreneurs are willing to take big risks like personal debt to ensure they keep their doors open. Unfortunately, though, there comes a time when taking measures to save a business will not help anymore, which is when closing down the operation becomes necessary. Under those circumstances, it can also be necessary to seek some relief from your debts, especially if you are personally liable for the debts your small business has incurred.
When you should declare bankruptcy
First and foremost, it is important to remember that not all entrepreneurs are personally liable for their businesses’ debts, so understanding the effect bankruptcy will have on your personal life means understanding whether you are liable. Under most circumstances, sole proprietorships and limited partnerships that have not filed to become limited liability corporations (LLCs) will have some liability for the debts incurred by their companies, but only an experienced attorney can help you sort out exactly how much. If you are liable for your company’s debts, then Chapter 7 bankruptcy might be your best option.
Understanding how Chapter 7 works
When you file for Chapter 7 bankruptcy as an entrepreneur, you do wind up losing all assets above the exemption level, which means that the properties, equipment, and so on from your old business will be sold to help pay off your debts. You will also be given a “fresh start,” which is caused by the complete discharge of your old debt obligations, leaving you open to pursue new personal or entrepreneurial opportunities. There are some restrictions and limits on the use of bankruptcy for these ends, though, including:
- If your income is above the state’s median income, there is a presumption of abuse unless you can show otherwise.
- There can be no other bankruptcy petitions that have been dismissed for failure to show up within the last 180 days.
- There is a limitation to filing Chapter 7, so if you do, you will not be able to file again for eight years after the date of your debt discharge.
When you need a bankruptcy attorney
If you think Chapter 7 bankruptcy represents your absolute best chance for debt relief, then the next logical step is to talk to an experienced bankruptcy attorney about how to negotiate this process as an entrepreneur.