Small businesses can fail for a variety of reasons, leading their business owner to have to file for bankruptcy. But what happens to your business if you have to file for personal bankruptcy? Will you be forced to close your business as a result? The answer is, it depends.
It all depends on the structure of your business, how much debt and assets you have and whether you intend to continue operating your business. If you file for Chapter 7 personal bankruptcy, you might have to shut down your business. If you own an LLC or corporation, it might be possible to keep your doors open (even if your are personally liable for a significant portion of debt).
Sole Proprietorships
If you own a sole proprietorship, the trustee may insist that you close your business while the assessment takes place. The value, exempt status and sales price of any business assets in your bankruptcy estate will be analyzed, which can take at least a couple of months. They might also insist that your business close to prevent you from incurring any additional liabilities during the bankruptcy case. If the chances of you running up debt are small (your business operates without assets), you might be allowed to remain open during bankruptcy.
Partnerships and Multimember LLCs
If your business is owned by more than one individual, your share of the business will be part of the bankruptcy estate. If you are a majority owner, however, the trustee will be prohibited from interfering with the business or its assets in most cases. In other cases, you may need to get out of the partnership or LLC before filing for bankruptcy; you may have signed a buy-sell agreement that requires you to do so before filing a bankruptcy. A small business attorney can help you determine if this is the case or not.
Corporations and Single-Member LLCs
If you are the sole or majority owner of a corporation or LLC, the trustee will take over your shares or membership interest and vote to sell or liquidate the business. The funds will then be distributed to the business’ creditors. If you are the single owner of either business structure, the bankruptcy trustee will take a cost/benefit approach. They will consider: the cost of dissolving and liquidating the business, how much assets can be sold for, and whether any of the assets are exempt.
How to Move On After Bankruptcy
If your business is permitted to continue operating or you’re completely starting over after bankruptcy, you will be glad to hear there are still options available to you. It’s true that finding funding is a huge challenge after bankruptcy, but it is not impossible. High risk specialists like First American Merchant specialize in working with business owners that are deemed high risk by traditional lenders.
With First American Merchant’s merchant cash advance, for example, your business can secure the cash it needs to get back on its feet in as little as 24 hours. The application process is simple and can be completed in a matter of minutes online. If you need a boost of capital to get your business back on track and grow, consider what a merchant cash advance can do for you.