Can creditors go after personal assets in a chapter 11 business bankruptcy?

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Question:

I have a small LLC and as a company have become insolvent. If I file for chapter 11 are my personal assets at any risk?

Answer:

Chapter 11 bankruptcy is often the preferred choice for companies, as it allows them to stay in business after filing. Creditors can go after the personal assets of a business owner only if he is a sole proprietor or part of a partnership. This is because the business assets are not separate from the personal ones in such cases. On the other hand, corporations and limited liability companies keep the personal and business assets separate, which means that creditors cannot take personal property.

It is for this reason that forming a corporation or LLC is often preferred over being a sole proprietor or part of a partnership. If you have assets that you do not want to lose during bankruptcy, it is usually worth it to undergo the process of incorporating. Otherwise, your property is in the hands of the trustee should you declare chapter 11 bankruptcy for your business.

Either way, you are advised to talk to a bankruptcy lawyer before taking your next step, as you may be able to get asset exemptions for some of your property.

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