Can I Keep My Business After I File Bankruptcy?

25 Apr Can I Keep My Business After I File Bankruptcy?

It depends on what kind of business you have, and what kind of bankruptcy you file. A sole proprietorship, (a business you own by yourself that’s not incorporated), becomes an asset of the bankruptcy estate. As such, in a Chapter 7 bankruptcy, it can be sold or distributed to pay creditors. Often, however, the assets of the business can be exempted and you can continue to run the business even after you file for bankruptcy protection.
In a Chapter 13 bankruptcy you can continue to run the business, and use the proceeds to fund a Chapter 13 plan to make your payments. Chapter 13 business bankruptcies are more complicated than normal chapter 13’s because it isn’t as easy to estimate the income from month to month. Nonetheless, those plans work well and you can emerge at the end of the plan period with your business up and going strong.
If you own all or part of a corporation the stock becomes an asset of the bankruptcy. Thus, in a Chapter 7 bankruptcy, if the asset can be sold, the trustee will do so to pay creditors of the estate. Often there is no market for stock in a small business, and therefore it has little or no value to the estate. When the Chapter 7 is over, the corporation hasn’t been affected.
Of course, if you are discharging money you owe to the suppliers of the business, they may not be as willing to continue their relationship with you after the bankruptcy. Sometimes you can get around that by paying cash on delivery, but sometimes you will have to look elsewhere for your supplies.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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