When you are struggling under mountains of debts, filing for Chapter 7 bankruptcy may be a worthwhile option to regain your financial footing with a clean slate. However, the process does run the risk of having your assets liquidated to repay your creditors the debt's outstanding amount. Many past clients have often asked if they can keep operating their business in Chapter 7 Bankruptcy. The answer is that it depends. Continue reading for more details.
Under Federal and State Law, you are allowed to exempt (protect) certain properties from being liquidated during a bankruptcy process. Unfortunately, it can be extremely difficult to have your business assets exempted in most states. For example, in Texas, business assets are not including in any of the state's exemption categories. In Federal law, there is an exemption category called “Wild Card”, which allows you to exempt any of your assets, regardless of type. Its use in the case of protecting most business assets is very limited. As of the time of this writing, the exemption value under a Wild Card is just $1,325 plus up to $12,575 of any unused portion of the federal homestead exemption.
Your Business Type and Chapter 7 Bankruptcy
What actually happens to your business during a bankruptcy process will be largely determined by the legal nature of your business. Here are some common business types and how their assets are handled by a bankruptcy trustee.
In the case of sole proprietorships, all your business assets will be dealt with as if they were your personal assets. The trustee may sell off your business and use the proceeds to pay back your creditors. However, in case of sole ownership, certain assets of up to a total value of $2,525 are exempt under Federal Law
Corporations and Limited Liability Companies (LLC)
Since an incorporated business is an independent legal entity, all its assets are considered separate from you. Instead, the trustee will liquidate your portion of the shares in the company to repay creditors. However, if the trustee finds that the stocks cannot be sold or finds that it won't make enough money to make it worthwhile, he will transfer the shares back into your ownership.
In partnerships, all partners are liable in case of business debts. Assets are handled in the same way as in the case of sole proprietorships. However, this can absolve on or more of the business partners of much of their responsibility towards the debts, litigations are quite common after a partner has filed for bankruptcy. However, the assets take too long to sell off or are not enough in value to justify selling them off; the assets will be abandoned by the trustee and given back to the partnership.
Hire an Attorney
Bankruptcy laws can be complex to understand and the legal process can be difficult to go through without the help of a legal attorney. If you need professional personalized legal advice on filing for Chapter 7 bankruptcy, contact The Law Offices Sean T. Flynn at 512-640-3440 or contact directly online.
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