Chapter 7 Bankruptcy for Sole Proprietors
Bankruptcy is often associated with either consumers or large corporations. However, individuals who own their own small businesses can also benefit from the bankruptcy process. Many small business owners get in over their heads or decide not to continue with the enterprise for different reasons. However, what happens when there are some business debts that are unresolved? If you are a sole proprietor and you are wondering what to do about lingering business debts that you cannot pay, contact an experienced Monterey County bankruptcy lawyer for assistance.
Sole Proprietorships and Debt
There are different options for forming a business, and some options require little to no formal steps at all. Sole proprietorships are owned by individuals, and there is no need to file any paperwork or register with the state. You simply begin operating a business, and you have a sole proprietorship.
In exchange for the ease of starting this type of business, sole proprietors do not enjoy the same liability protections as owners of limited liability companies (LLCs) or corporations do. This means that sole proprietors have personal liability for their business debts. For example:
- You start a business and enter into a contract with another business that requires monthly payments
- After a year, the business cannot afford to keep up with payments, and there are not enough business assets to pay the balance of the contract
- The other party to the contract can come after your personal assets, including your bank accounts, home, and more, as well as report the nonpayment to your credit bureaus
For sole proprietors, business and personal debts are one and the same. This can be detrimental to your personal finances should the business struggle or fail. The good news is that your personal liability can make it relatively straightforward to resolve your business debts through Chapter 7 bankruptcy. Please note that this analysis applies to small business owners that have elected to close their business; other considerations, not discussed here, exist if the business is still operating.
Discharging Your Debts
When you file a successful Chapter 7 bankruptcy case, the matter ends with the discharge of your qualified debts, which include credit cards, credit lines, unsecured loans, and more. If you are a sole proprietor, you can generally add in your business debts to the list of your personal debts. If everything goes as planned, the court can discharge all listed debts, and you can move forward with a relatively clean slate.
If you realize it is time to close your business and the company has leftover debts, Chapter 7 bankruptcy can be a real option. The bankruptcy trustee will liquidate your business and pay off the debts, and then the court can discharge the remaining unpaid debts. This can be much easier than trying to sell your business property yourself, especially since you might have unresolved debts left over afterward. Bankruptcy can be a beneficial process.
Contact Our Monterey County Chapter 7 Bankruptcy Attorneys
The law office of Miranda, Magden & Miranda, LLP, helps both consumers and small business owners with the bankruptcy process. If you would like more information about your options, contact us today.