Your Business Formation Can Impact Your Bankruptcy

by DeLadurantey Law Office, LLC on February 9, 2015

Housing CrisisIf you are a small business owner and you are considering filing for bankruptcy, it is important to understand that the legal organization of your business can impact the outcome of the filing. The three most common formations for small businesses are sole proprietorship, limited liability company (LLC) and a corporation.

Sole Proprietorship

If you are operating your business as a sole proprietor, the law does not distinguish between the entity and you. In other words, you and the business are treated as one in the same. This means that if you file a personal bankruptcy, the business (and its assets) will be included in the case. The same is true if your sole proprietorship business files a bankruptcy, your personal assets will be included in the case.

LLC or Corporation Ownership

A LLC and a corporation are separate legal entities under the law. As a result, if you file a personal bankruptcy, only your business ownership will be included in your filing since it is your personal asset. The business can continue to operate even though your equity portion in the entity is an asset in your personal bankruptcy filing. If the LLC or corporate entity files a business bankruptcy, your personal assets (outside of your portion of the business ownership) will not be included in the filing.

It is important to note that many bankruptcy trustees do not like to liquidate a small business owner’s interest in the company. It is typically difficult to find a buyer for the business interest. It is also common for small businesses to have little or no value due to the amount of debt on the entity’s books from building or operating the business.

If you are a small business owner and you (or your entity) are considering filing for bankruptcy protection, contact our office to learn how you and your business will be impacted.

At DeLadurantey Law Office, LLC, we help businesses and families find their way out of highly difficult financial situations. We provide the advice and guidance you need in obtaining debt relief through bankruptcy and debt negotiations. We can also assist you in student loan law and defending a foreclosure action. Contact us at 414-377-0518 to discuss how our Milwaukee bankruptcy attorneys can assist you. Like us on Facebook.

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