Can a Small Business Owner File for Personal Bankruptcy?

Can a Small Business Owner File for Personal Bankruptcy?


If you own a small business in Ohio and you are struggling with debt, you may be considering personal bankruptcy. Even if you applied for and received a loan through the Paycheck Protection Program (PPP) or the Economic Injury Disaster Loan (EIDL) program, you may realize you cannot repay the loan, and are concerned the loan will not be eligible for forgiveness.

Whether you are struggling with debt as a result of the coronavirus pandemic or you have been trying to manage your debt for quite some time without success, personal bankruptcy could be the right choice for you. If you own a business and need to file for consumer bankruptcy, the following information will be helpful.

Personal Bankruptcy is Different for Sole Proprietors and Other Business Owners

If your business is a sole proprietorship, and you are making plans to file for personal bankruptcy, you need to know that you and your business are, for all intents and purposes, the same legal entity. Accordingly, if you are planning to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, your business assets and debts will need to be included as part of your bankruptcy case under the U.S. Bankruptcy Code.

For sole proprietorship owners who are considering Chapter 13 bankruptcy, which is a reorganization bankruptcy, you can keep your business operating during your bankruptcy case. However, if you are considering Chapter 7 bankruptcy, which is a type of liquidation bankruptcy, your non-exempt business assets will need to be liquidated along with your non-exempt personal assets—in terms of legal ownership, your business assets are your personal assets, and vice versa. As such, if you file for Chapter 7 bankruptcy, you may need to close your business or buy it back from the bankruptcy court “trustee”.

Other Types of Business Structures Will Not Be Impacted by a Personal Bankruptcy 

If you own another type of small business, including a business structured as a partnership, LLC, or even a corporation, your personal bankruptcy case will not have the same effect on your business as the one described above. Instead, partnerships, LLCs, and corporations are all separate legal entities. However, you should still consult with an attorney about how your personal bankruptcy will directly impact your business since you and the business are not the same entity in such situations.

When You May Be Personally Liable for Business Debts, Especially PPP or EIDL Loans 

If you received a PPP or EIDL loan that has a personal guarantee, and you do not believe your loan will be forgiven, you should speak with a bankruptcy lawyer about whether it makes sense to file for personal bankruptcy. The amount personally guaranteed ultimately could be dischargeable in a personal bankruptcy case if you need to close your business.

Contact an Ohio Bankruptcy Attorney 

Bankruptcy filings can be extremely complicated, and it is essential to work with an experienced Ohio bankruptcy attorney who can ensure that your case is handled according to bankruptcy law. If you have questions about filing for personal bankruptcy as a small business owner, you should get in touch with one of the bankruptcy attorneys at DworkenLaw.com.

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