How Are Business Assets Handled During a Personal Bankruptcy Filing?
Options To Protect Your Business Assets When Filing For Bankruptcy In Arizona
When you file for bankruptcy, the bankruptcy trustee will consider all of the debts you owe, as well as all of the assets you have. The goal is to understand what you are actually able to pay your creditors. If that number falls below a certain threshold, you may be able to have the debts discharged, such as in Chapter 7 bankruptcy, or you may be able to have the debts reorganized into a more affordable repayment plan, such as in a Chapter 13 bankruptcy.
Fortunately, bankruptcy law allows you to exempt some of your assets from consideration, such as a certain amount of equity in your home, vehicle, or other personal belongings. This way, you do not have to sell everything you own and start from zero to get some debt relief.
If you own a business, considerations become more complex. There are some protections for business assets, but not as many as for personal assets. Here are how business assets may be handled in a personal bankruptcy filing, depending on what type of business structure you have:
Under a sole proprietorship, you enjoy 100 percent of the profits, and all the equipment and other assets belong to you. Therefore, your assets will likely be subject to liquidation if you own this type of business.
If you are a service provider, such as a freelance writer or consultant, you likely won’t have many assets. The bankruptcy trustee may decide that the time and expense required to sell a laptop, for example, are not worth the return to pay back your creditors. Your bankruptcy attorney will help you understand how assets are likely to be handled so you can make an informed decision.
Partnerships & LLCs With Multiple Members
Partnerships and multi-member LLCs have a little more protection from personal bankruptcy filings. Generally, a bankruptcy trustee cannot take business assets unless the person filing for bankruptcy has a majority share in the business. However, the trustee can get what is known as a charging order, which allows the trustee to collect on the person’s share of the profits. A trustee may also be able to assign or sell your economics rights in your ownership interest in a partnership or LLC.
In order to protect your business, you may need to consider selling your share of your partnership or the LLC before you file for personal bankruptcy.
Single-Member LLCs & Corporations
If you are the sole owner of a corporation or the majority member of an LLC, a bankruptcy trustee has the right to take business assets to satisfy your debts. The trustee will look at the cost of seizing and liquidating assets and compare that to the benefits of doing so, or the cost that would be returned. If the return is not high enough, the bankruptcy trustee is unlikely to pursue assets.
If there are multiple owners for your corporation, the business will likely be protected from your personal bankruptcy filing. Talk to your bankruptcy attorney to understand how bankruptcy law applies to your specific circumstances.
Do not let the fact that you own a business keep you from getting the debt protection you need through bankruptcy. It is not a foregone conclusion that the bankruptcy trustee would take the assets from your business. An experienced Phoenix bankruptcy attorney will review your specific financial circumstances and help you understand how bankruptcy will influence your assets – as well as how it will help alleviate your financial problems. Your attorney can also help you understand strategies to use to protect your assets from a bankruptcy filing.
Hire a Qualified Bankruptcy Lawyer In Phoenix
Call My AZ Lawyers today to talk more about how bankruptcy can help you get the financial reset that you need. Our Tucson bankruptcy lawyers represent people filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy. After reviewing your finances, we’ll help you understand which can give you the most benefits while also allowing you to keep more of your personal or business assets. We have offices throughout the Phoenix area. Contact us today to schedule a free consultation with a Tucson bankruptcy attorney to learn more about your legal options for debt relief.