Filing bankruptcy as a business can help a small business in Phoenix survive. It may be a hard decision to make, but if you are in a tough position with your business, you should at least consult with an attorney to understand what options you have available to you. The type of bankruptcy you file will depend on how your business is incorporated. If you are a sole proprietor, then your options will be different than if you were an LLC or S-Corp. It’s important to understand which type of bankruptcy would be available to you and what it would mean for your business.
A sole proprietorship is a one owner business that has not been incorporated or structured as an LLC. If you have your own business but have not formally created a corporate structure, then you have a sole proprietorship. In the eyes of the law, there is no separation between the business and the owner, so creditors can sue you personally to take your personal assets.
With a Chapter 7 bankruptcy, you will be asked to give up any property you own that is not exempt under Arizona law. Exemptions are intended to let you keep basic necessities. Under Arizona law, you will be able to exempt equity in your home, car or other assets. Most business property will not be exempt though, so if you file Chapter 7, you should expect to lose it.
In Chapter 13 bankruptcy, you will not be required to give up any property. With this option, you will have to agree to a 3-5 year repayment plan to pay off some or all of your debt. Once you are able to pay off your repayment plan, any remaining debts will be settled.
If you own a corporation, then your bankruptcy options can be a little different. Because Chapter 13 bankruptcy is tied to an individual, you are not able to file Chapter 13 for a corporation. Instead you would have to file a Chapter 11 bankruptcy.
When you file Chapter 7 bankruptcy as a corporation, you lose control of the business. The bankruptcy trustee will take over the business assets and determine whether it is worth selling the business entirely or only selling the assets of the business. If all goes well in a Chapter 7 bankruptcy, the member(s) or officer(s) of the business can walk away and leave the selling of the business or business assets up to the bankruptcy trustee.
Chapter 11 bankruptcy is the only way for a small business seeking to restructure and continue its operations. This type of bankruptcy is very complex and time consuming. Because of this, business members and officers try to stay away from this form of bankruptcy unless they absolutely have to.
At Daniel Taylor Law, P.C., we believe bankruptcies can have a winning strategy. No two businesses are the same nor should they be treated that way. We focus on understanding your unique scenario so that we can put you in the best position possible after this process. We want to make sure we protect your assets and put you in a good position afterwards. Fill out the contact form below to get your FREE one hour strategy call.