What Bankruptcy Can And Can’t Do For Your Business
By Kevin Gipson, New Orleans Bankruptcy Attorney on Oct 29, 2007 in Benefits of Bankruptcy, General Bankruptcy Information, Louisiana, Small Business And Self-Employment
In a recent article by BLN contributor, Craig Andresen entitiled: “Sole Proprietor “Business” Chapter 13 Cases: Yes, You Can Do It!” discusses the option of a Chapter 13 bankruptcy for the sole proprietor.
He also points out that a business such as a Limited Liability Company or a Corporation may file for bankruptcy and obtain a stay of proceedings, but not a discharge of the business debts.
There are a number of advantages to business bankruptcy, however, one thing a business bankruptcy cannot do is protect you from a personal lawsuit.
But wait! You paid an attorney to create that L.L.C. or corporation so that you could avoid personal liability! So how can you be sued?
First, unless you are General Motors, McDonald’s or another large corporation, the odds are that a creditor will not loan many to your business only and will seek a personal guarantee from you individually. Therefore, the business bankruptcy does not stay the creditor’s right to proceed with a lawsuit against you individually.
Secondly, while many individuals set up an L.L.C. or corporation to avoid personal liability, they then don’t act like a separate business entity.
They might pay personal bills out of the business account. They might not have board meetings if they are a corporation. They might not pay there annual fees to maintain their registrations with their state of municipal governments.
All of these acts and inactions can result in a creditor suing you individually saying that you and the business are “alter egos” of each other and attempt to “pierce the corporate veil.” The suit will allege that you and your business failed to follow the necessary formalities in order to be able to separate you from your business.
When considering a business only bankruptcy, keep these issues in mind and be sure to discuss any potential problems with your bankruptcy attorney.
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