Personal Liability for Business Debts
Running a small business can prove challenging and may lead to personal liability for business debt. Depending on the structure of your business, you can be held personally liable for company debts. In other words, creditors have the right to pursue personal assets in order to satisfy business debts. If you own a small business and are planning to file for bankruptcy under Chapter 7, 11, or 13, a DuPage County personal liability for business debts lawyer can help to determine the best option based on your circumstances. Filing for bankruptcy demands attention to detail. At the Bankruptcy Center of Illinois, our experienced small business attorneys are prepared to clearly explain your options and provide effective legal representation.Personal Liability for Small Business Owners Filing for Bankruptcy
Chapter 7 bankruptcy is appropriate when a business is unlikely to move forward in the future. If there are no significant assets, this type of bankruptcy may be appropriate. Often, small businesses are sole proprietorships. As the owner, you would be personally responsible for business debts. This is because a sole proprietorship is not a separate entity. Filing for a Chapter 7 bankruptcy allows for individuals to clear their business and personal debts in one bankruptcy filing. Illinois exemptions can be applied to protect assets. In some cases, there may be the option of securing a discharge and continuing the business.
Limited liability companies, partnerships, and corporations can also file for Chapter 7 bankruptcy. Debt would not be discharged, and exemptions cannot be applied to protect partners’ assets. In fact, if the business assets do not pay the debts of the partnership, the trustee has the right to pursue personal assets. Typically, each business partner separately files for personal Chapter 7 bankruptcy. Other alternatives, aside from filing for Chapter 7 bankruptcy, may be appropriate for corporations and limited liability companies.
For partnerships or limited liability companies, the situation is a bit more complex. Partnerships are a separate legal entity. Chapter 7 business bankruptcy would entail a bankruptcy administrator taking action to pay the partnership's creditors. This usually involves closing the business and liquidating assets. There would not be a discharge of debt. The partnership’s bankruptcy does not affect the partners’ personal liability. As a general partner, if there are not enough assets to pay creditors, you may be liable for business debt.Chapters 11 and 13 Bankruptcy and Personal Liability for Debt
Chapter 11 bankruptcy is an option when business owners want to continue their operations and reorganize their debts over time. Filing for bankruptcy under Chapter 11 provides for restructuring the business under a court-approved plan. Depending on the business structure, the procedures differ under Chapter 11. For example, for a sole proprietorship, the personal assets of the owners are involved in the bankruptcy. A corporation, in comparison, is separate from the owners. A corporation that files for Chapter 11 bankruptcy does not risk personal assets held by stockholders, other than their stock investment.
Chapter 13 bankruptcy is available to sole proprietors, not corporations or limited liability companies. This type of bankruptcy provides a way to keep assets and repay debt through a repayment plan over a period of years, typically 3-5. According to Chapter 13 bankruptcy, the income and property owned by a sole proprietor is available to pay debts. Non-exempt assets may be maintained during reorganizing and paying off debt. Monthly payments are made to a trustee who then pays creditors as set forth under the plan.Discuss the Details of Your Bankruptcy Filing with an Experienced DuPage County Lawyer
Small businesses may face challenging circumstances and decide to halt operations and file for bankruptcy. It is important to discuss all options and understand potential personal liability for different types of bankruptcy filings. If you own a small business and are considering filing for bankruptcy, our DuPage County small business bankruptcy lawyers can help. We can be reached by phone at (773) 993-0024 or through our online form.