Filing Bankruptcy Due to Business Debt

Small businesses have been hit hard by bad economic times, leaving many owners to look to bankruptcy for relief. Bankruptcy can help you if your business has failed or is going under due to excessive debts.

Business Debt and Bankruptcy

If you have business debts, you may be wondering what your options are if you cannot pay them. Your creditors may be harassing you and even threatening or taking legal action against you. Bankruptcy can stop all of that. When you file for bankruptcy, a stay is put on all actions taken against you during your bankruptcy proceedings. The creditors must stop calling you and cannot sue you until your case is complete.

You will need to figure out first whether you will be personally liable for your business debts. Unless you have a corporation or limited liability company or some other business structure which protects you from liability, you probably will be held liable for business debts incurred under your name. This can be worrisome if you have a house or other assets you wish to protect. An attorney can advise you on personal asset protection during business bankruptcy.

No matter what business structure you held, the Internal Revenue Service will hold you personally liable for any payroll tax debt owed. This is one kind of debt from which you cannot usually be protected as an individual.

You can either file for Chapter 7 or Chapter 13 if you are a sole proprietor. Either bankruptcy chapter can help you with both business and personal debts. The best chapter for your situation will depend on how much money you are earning, how much debt you have, what type of debt it is and what assets you have. If you do not have any assets and little or no income, you will likely file Chapter 7 because it will relieve you of most or all unsecured debt and help you start with little or no debt.

Keep in mind that some debts are not allowed to be included in bankruptcy. If you have student loan or tax debts, you will likely be stuck with those after bankruptcy. Still, bankruptcy can make it easier to pay those debts by relieving you of other obligations.

Getting Legal Help

A lawyer can assist you with filing for bankruptcy because of business debts. Bankruptcy attorneys are skilled at evaluating cases like yours, offering legal advice and helping clients get through bankruptcy and move on with their lives.