When a small business owner chooses to file for bankruptcy in Texas, they may fear for the future of their business. Whether or not a business owner is able to keep their business after bankruptcy depends on the type of business they have and the type of bankruptcy they file for.
There are three primary bankruptcy choices for small business owners who cannot pay their bills. If the bills are personal, then a Chapter 7 or Chapter 13 bankruptcy is used to handle personal debts. The essential difference between these two is that Chapter 13 creates a repayment plan and Chapter 7 liquidates assets. If a business is a sole proprietorship, then the business is not affected by a Chapter 7 bankruptcy. Tools a person needs to do a job or conduct business are generally exempt from liquidation up to a certain dollar amount. This exemption will usually protect a sole proprietor and allow them to continue operating their business despite the bankruptcy.
If a business is considered a separate legal entity, then it is not included in a personal bankruptcy and must file separately. Partnerships, corporations and LLCs are all considered their own legal entities. If these businesses file for Chapter 7 bankruptcy, then they cease to exist because all business assets are liquidated. The only way to save such a business is to file for Chapter 11 bankruptcy. This is a business bankruptcy that creates a plan for debt repayment and allows the business to continue operating.
An attorney can assist a client in deciding which form of bankruptcy is best for a given situation. The attorney can also advise a client as to their rights during the bankruptcy and help them determine which assets may be exempt from liquidation. There are often many forms needed to file for bankruptcy, and an attorney can also assist with this filing.
Source: Houston Chronicle, “Can I Keep My Business If I File for Chapter 7 Bankruptcy?,” August Jackson, Accessed Feb. 11, 2015