Should I file a Bankruptcy for my Business?
If you are self-employed and facing bankruptcy, do you need to file a bankrutpcy for your business? This is a common question for many self-employed people facing insurmountable debt problems. Especially if you have a corporation, many of your debts are probably enforceable against both the corporation and the owner. If there are multiple owners, one or all of them could be liable for the business’ debts. The question of who is liable for the business debts depends on what documents govern the debts – in other words, what does the contract say and who signed it? Most small businesses, even if they exist as corporations, are not the sole entities liable for their debts. Usually, creditors require that the owner co-sign for the business debts, making him or her personally liable.
A personal bankruptcy will handle all of your personal debts, including any debts you incurred as a co-signor for your business. So what happens to your business debts? Do you need to file a separate bankruptcy for your business?
Usually, the answer is “no.” I have heard an old lawyer describe a bankruptcy for a closed business is like a funeral for a ghost: there is no body, no casket, no grave, and no widow, so who cares? The fact is that by the time you are facing personal bankruptcy, your business has probably already lost all of its assets and is going to have to shut down anyway. If that is the case, then there is no need for a separate bankruptcy for your business, because it has nothing its creditors can take. And if you file a personal bankruptcy, then they cannot come after you, so as the old lawyer said, who cares?
The only time when you should file a bankruptcy for your business is if the business has value as a going concern and you want to keep it running. In that case, a Chapter 11 bankruptcy can help you re-organize your business debts while still operating the business. Chapter 11 cases can be complex and expensive, however, so it is only a good option if your business has a lot of value or assets in its own right.