Owning a business does not prevent you from filing bankruptcy.
But a business owner’s bankruptcy is often more complicated than a typical consumer case.
The first question is: Who owes the debt—you personally, your business, or both?
What Type of Business Do You Own?
The analysis can differ substantially depending on whether you operate as:
- A sole proprietor
- LLC
- Corporation
- Partnership
- Another business entity
A separate legal entity and an individual owner are not automatically the same bankruptcy debtor.
What About Personal Guarantees?
Many small-business owners personally guarantee:
- Business credit cards
- Bank loans
- Equipment financing
- Commercial leases
- Lines of credit
- Vendor obligations
Closing the business does not necessarily eliminate those personal guarantees.
A personal bankruptcy may therefore be worth considering even when the business itself is not filing bankruptcy.
Can I Keep Operating My Business in Chapter 7?
Possibly, but this requires careful analysis.
The business structure, value, assets, receivables, inventory, liabilities and exemptions can all matter.
Someone with an operating business should not file Chapter 7 based solely on a simple online eligibility test.
What About Chapter 13?
An eligible individual may be able to use Chapter 13 while operating a business.
Chapter 13 may provide useful options when the debtor needs bankruptcy protection while maintaining income and addressing debts through a repayment plan.
What Records Will My Attorney Need?
Business owners should expect more financial review.
Useful records may include:
- Business tax returns
- Personal tax returns
- Profit-and-loss statements
- Balance sheets
- Bank statements
- Accounts receivable
- Equipment lists
- Loan documents
- Leases
- Business credit cards
- Personal guarantees
Accurate records make it much easier to evaluate your options.
Should I Close My Business Before Bankruptcy?
Do not close, sell or transfer a business merely because you think you may file bankruptcy.
Likewise, do not transfer business assets to someone else in an attempt to keep them away from creditors.
Get legal advice first.
Frequently Asked Questions
Can a self-employed person file Chapter 7?
Potentially. Self-employment does not automatically prevent Chapter 7 eligibility.
Can bankruptcy eliminate a personal guarantee?
Many contractual personal guarantees may be dischargeable, although exceptions can apply.
Will Chapter 7 close my business?
Not necessarily, but business ownership can substantially complicate a Chapter 7 case and requires careful pre-filing analysis.
Can I keep my LLC if I file personal bankruptcy?
Ownership interests in an LLC are assets that need to be disclosed and evaluated. The answer depends on the circumstances.
Free Bankruptcy Consultation for Oklahoma Business Owners
Business owners need more than a simple “Chapter 7 or Chapter 13?” analysis.
Contact Brown Law Firm for a free bankruptcy consultation. We can review your business structure, personal guarantees, assets and debts and discuss bankruptcy options for you and your business.
