Faced with the daunting decision to file for personal bankruptcy, you might find yourself wondering, Will this affect my business? It’s a valid and concerning thought, especially when your business is not just a source of income, but a part of your identity.
This blog post is dedicated to exploring the complexities of the question, “How Does Filing Personal Bankruptcy Affect My Business in Maryland?” We’ll dive into the nuances of personal bankruptcy – and how filing can impact your business -in order to help guide you through this challenging time.
Table of Contents
Understanding Personal Bankruptcy
Chapter 7 Bankruptcy
Often referred to as ‘liquidation’ bankruptcy, in Chapter 7, a US trustee is appointed. Their function is to review the bankruptcy paperwork to determine if any assets are available to sell and pay creditors. An experienced bankruptcy attorney can advise you on available exemptions that can be used to protect various different kinds of assets.
The upside to Chapter 7 is that it allows you to wipe the slate clean from general unsecured debts like personal loans and credit cards. However, not all debts can be discharged.
Chapter 7 is typically faster and often completed within months. While it can be seen as a drastic step, it can offer a fresh financial start, especially if your debts are overwhelming compared to your income.
Chapter 13 Bankruptcy
Instead of selling assets, in Chapter 13, you propose a plan that allows you to repay some or all of your debts over a period of 3-5 years. Chapter 13 is a smart choice for people with a steady income who can handle a structured repayment plan. Chapter 13 can be a lifeline if you’re trying to protect assets like your home from foreclosure, through the ‘Automatic Stay.’
Chapter 11 Bankruptcy
Similar to Chapter 13, Chapter 11 allows you to propose a plan to repay some or all of your debts. However, unlike Chapter 13, Chapter 11 is not constrained by a debt ceiling and does not confine you to a 3-5 year repayment plan. Additionally, you still get the benefits of the Automatic Stay, which halts all collection activities. When establishing your Reorganization Plan, you have the flexibility to extend debt payments over a longer period of time and change other terms of your loans.
The specific type of personal bankruptcy you choose can have varying impacts on your business. Understanding these nuances is key in answering “How does filing personal bankruptcy affect my business in Maryland?” and making an informed decision.
The Intersection of Personal and Business Finances
Understanding the relationship between your personal and business finances is vital. This intersection varies significantly based on your business structure.
Sole Proprietorships and Bankruptcy
In a sole proprietorship, the owner of the business is the same as the business itself.
- Your business doesn’t have a legal identity separate from you, and there is no limited liability, as there is in an LLC.
- Income and losses from the business are reported on your personal tax return, often on a form Schedule C.
- Your business assets are included in a bankruptcy filing.
- A bankruptcy trustee has the right to take control of these assets and sell them to pay off your debts.
This direct link means that filing personal bankruptcy can have significant implications for your business operations and assets.
Limited Liability Companies (LLCs) and Corporations: Shielded from Personal Bankruptcy?
LLCs and corporations are considered separate and distinct from their owners, but they still can come into play in your personal bankruptcy.
If you are the sole owner of an LLC, as is common in many small businesses, the business’s assets may be considered in your personal bankruptcy filing.
If you own a portion of an LLC, such as 51%, then for bankruptcy purposes, you’re generally considered to own 51% of the LLC’s assets.
The same is true for corporations–regardless of their size. They may be owned by a single owner or several owners.
In either case, keep in mind that the value of the business may be reduced by its liabilities. For example, if the business has a checking account with $25,000 in it, but has a business loan for $50,000, the business may not actually have any value.
If you need to file for personal bankruptcy, there are some strategies you can adopt to protect your business.
Strategies to Protect Your Business
Separate Personal and Business Finances
Creating a clear boundary between your personal and business finances is essential, but many small business owners co-mingle business and personal funds, which can create many issues in personal bankruptcy.
- Maintaining separate bank accounts and credit lines for your business is crucial.
- This separation can ensure that the limited liability offered by the LLC or corporation remains intact and protects you from personal liability.
Maintain Accurate Financial Records
The clarity of your financial records can play a pivotal role:
- Ensure all business financial records are accurate and up-to-date.
- This helps demonstrate the separation between personal and business finances, especially in bankruptcy proceedings.
- An experienced bankruptcy attorney can offer invaluable guidance as you clean up your books and records. They can also connect you with professionals like accountants, who can provide further assistance.
Now, it’s time to start taking active steps to mitigate those repercussions.
How Does Filing Personal Bankruptcy Affect My Business in Maryland? The Bottom Line
Understanding how filing personal bankruptcy affects your business is a complex journey. The impact varies based on your business structure, whether it’s a sole proprietorship, LLC, or corporation.
Implementing protective measures, such as separating your personal and business finances and restructuring debts, can provide a crucial safety net for your business.
But keep in mind–bankruptcy is not about giving up; it’s about restarting your financial future. Most importantly, this journey shouldn’t be walked alone. Speak with an experienced bankruptcy attorney so you can navigate this challenging process with confidence.
Steiner Law Group Can Help Protect Your Assets
Steiner Law Group is an experienced bankruptcy firm that has helped hundreds of Maryland residents discharge millions of dollars of debt. Here’s how we can help you:
- Review your personal situation and advise you of your options.
- Work with you to determine which bankruptcy chapter is best for you personally and for your business.
- Prepare all the bankruptcy documentation and represent you during bankruptcy court proceedings.
- Negotiate with creditors on your behalf.
- Help you get out of debt and take measures to protect your business assets.
We do more than just clarify, “How does filing personal bankruptcy affect my business in Maryland?” We actively collaborate with you to emerge from the burden of debt, minimizing the impact on your business.
Contact Steiner Law Group
Do you need help emerging debt-free while protecting your business, or have more questions about “How does filing personal bankruptcy affect my business in Maryland?” Schedule a Consultation or call (410) 670-7060.