This post explains business bankruptcy and helps you figure out if it’s a good idea for your business.
1. I have business debt. Do I need to file bankruptcy?
I am a sole-proprietorship. If you are a sole proprietor, you are the business. This means that the business assets are your assets, and the business debts are your debts. If you file personal bankruptcy (under Chapters 7, 13 or an individual Chapter 11 case) your business debt will be wiped out and your business creditors can’t collect from you.
I am an LLC or corporation. If you own a separate legal entity, then filing personal bankruptcy won’t wipe out your business debts. To take care of business debts, you can do a few things:
- – Negotiate with the lender to settle the debt;
- – Close your business and turn over any leftover assets to your creditors; or
- – File a business bankruptcy to reorganize your debt.
2. How do I close my business without filing a business bankruptcy?
You can close a business by filing a “dissolution” with the Minnesota Secretary of State’s office. Dissolution gives notice to your creditors that you are closing up shop, and gives creditors a chance to try to collect assets before the business is wrapped up. You may be able to dissolve a business on your own, but you’ll probably want to consult an attorney first, to see if there will be any issues to watch out for.
3. Do I need to file business bankruptcy?
Generally not. If your business has lots of real estate, secured debts, or large assets, you may want to look into business bankruptcy to reorganize your debt. But most people don’t need business bankruptcy. If you have a business that’s insolvent, the dissolution process described above should be enough.
4. Are my business debts wiped out in my personal bankruptcy?
If you close a business and you have personally guaranteed the debts, the business creditors may try to collect from you after the business is closed.
Your personal liability on your business debts is erased. This means that if you default on your business debt, your creditor cannot come after you personally for that debt. On the other hand, this doesn’t prevent the creditor from collecting the business’s assets.
One other important point—if you have business debts, and a business bank account with the same creditor, your creditor probably has the right to take money directly out of your business account if you don’t pay the business debt, even after a personal bankruptcy. If you are keeping your money with a bank that is a creditor, the smart play is to move it as soon as you can.