Business Bankruptcy: will a personal bankruptcy need to follow?

[HHM]

So, let me get this straight. you can file a personal 7 and that will wipe away the business as well? I am asking because we are filing a personal 7 on 6/26 and have all of the business debts included. I believ that most if not all are tied to us personally. My attorney wasn't sure when we met with her in May, but said she would have the answer when we meet again.

Ok...lets back-up

If the business is a corporation/LLC (i.e. you filed articles of incorporation with your state's secretary of state, etc) and you file BK personally, any business debt upon which you could have been personally liable is eliminated as to you, individually...the corporation, however, is still liable.

If your business is not a corporation, i.e. you are a sole proprietorship or default partnership, then there is no separate corp. entity, and therefore, you would only file a personal BK.

[sick of debt]

So you should file a personal and business bankruptcy? The business is an S corp

[HHM]

So you should file a personal and business bankruptcy? The business is an S corp

Probably not. Yes, you should file a personal BK, but as was already explained, there is little reason to file a business BK. After all, if a business files a chapter 7, the business is essentially turned over to the BK trustee, it is not going to operate in the future.

[badandy]

[HHM]

Yes, if you applied for the debt under your SSN, almost certainly you have personal liability. Thus, both you, and the c-crop are liable or the debt.

[lifes2short]

Ok. I get it now. We are going to need to file both because all of our corporate (LLC) debt is all guaranteed personally... this is going to be another learning experience for the books, for sure.

[HHM]

Ok. I get it now. We are going to need to file both because all of our corporate (LLC) debt is all guaranteed personally... this is going to be another learning experience for the books, for sure.

You DO NOT need to file on both. You ONLY NEED to file personally. Keep in mind, chapter 7 liquidates your corporation, there is no more business after a chapter 7. It is an unnecessary expense to file chapter 7 on your corporation. The corporation will simply die and any debt for which the corporation is solely liable will die.

However, MAKE SURE you file a "final" tax return for the corporation and be sure to write in black marker across the top, BUSINESS CLOSED, this goes for all filing requirements, 1120, 940, and 941 as applicable.

[epiphany]

You DO NOT need to file on both. You ONLY NEED to file personally. Keep in mind, chapter 7 liquidates your business, there is no more business after a chapter 7. It is an unnecessary expense to file chapter 7 on your business. The business will simply die.

However, MAKE SURE you file a "final" tax return for the corporation and be sure to write in black marker across the top, BUSINESS CLOSED, this goes for all filing requirements, 1120, 940, and 941 as applicable.

Sorry to "hijack" this thread, but HHM, if my small, very small, business is a business in which I am sole proprietor, and I have no technical "business" debt, does my business die? I have enough exemptions to cover any inventory that I have.

Thank you,
ep

[HHM]

Sorry to "hijack" this thread, but HHM, if my small, very small, business is a business in which I am sole proprietor, and I have no technical "business" debt, does my business die? I have enough exemptions to cover any inventory that I have.

Thank you,
ep

If you are a sole-prop, there is no seperate corporate entity. Thus, there is no corporation that can file BK. All your debt is individual debt.

[lifes2short]

You DO NOT need to file on both. You ONLY NEED to file personally. Keep in mind, chapter 7 liquidates your corporation, there is no more business after a chapter 7. It is an unnecessary expense to file chapter 7 on your corporation. The corporation will simply die.

However, MAKE SURE you file a "final" tax return for the corporation and be sure to write in black marker across the top, BUSINESS CLOSED, this goes for all filing requirements, 1120, 940, and 941 as applicable.

Thanks for clearing it up. I'm with ya now! That will save ALOT of money.

[epiphany]

If you are a sole-prop, there is no seperate corporate entity. Thus, there is not corporation that can file BK. All your debt is individual debt.

Thank you HHM!

ep

[PoorGrammyinBK7]

I think (and I am not saying I know, cause I don't) that even though you are a sole prop. and not a corp. or LLC, your debts would still be portioned out as to "personal or consumer" debt - vs "primarily business" debt.

[HHM]

I think (and I am not saying I know, cause I don't) that even though you are a sole prop. and not a corp. or LLC, your debts would still be portioned out as to "personal or consumer" debt - vs "primarily business" debt.

Yes, for purposes of the means test, if you are a sole prop., and decide to file BK and the majority of your debt is "business" debt, then your case will not be presumed abusive if the debtor is over the median income.

I think we need to clarify some terms.

Corporation/LLC : These are separate legal entities capable of owning assets and accruing liability distinct from the owners.

Sole Proprietorship: Is an individual who is operating a commercial enterprise but has NOT formed a corporation/LLC.

Business: much of the confusion in this thread arose because we have been equivocating on the meaning...i.e. Business meaning simply the operation of a business enterprise, and business meaning a corporation.

For many small businesses, even if the business is a corporation, lenders will typically require the owners to sign a personal guarantee and offer personal assets as collateral. Thus, if the business defaults on the debt, then the owner is liable for the debt. It is not that there are different debts, business and individual, it is merely the same "debt" but with 2 entities liable to pay it.

Here are the implications of importance for BK.

The main question in this thread has been, what should the "owner" of a business do about commercial debt (i.e. business debt)?

Scenarios

1. The debtor is the owner of a "corporation" and all debt is "solely" in the business name. The owner does NOT have to file an individual BK. Basically, all the owner needs to do is stop operating the business and allow it to die.

2. The debtor is the owner of a "corporation" and much of the debt is "personally guaranteed" by the owner. In this case, the owner must file an individual BK and let the business die.

3. The debtor is an operator of a sole prop. Since there is no separate corporate entity, all debt is the responsibility of the owner. In this case, the owner must file an individual BK.

You will note, in none of the options is a corporate BK mentioned. As I have said in previous posts, there is no reason for the corp. to file BK 7. All that will happen is the trustee will shut down the business, sell any assets, and pay creditors, the "business function" of the corporation dies. You, as the owner, are just as capable of shutting down operations as the BK trustee. Corporate chapter 7's are rare, and usually only occur when creditors force an "involuntary" BK-7 onto the corporation.

Finally, the other caveat is means testing. If the owner must file an individual BK and the majority of that persons debt is the business debt of the corporation, or business related vis-a-vis the sole prop., then the debtor can bypass the means test.

[epiphany]

Thank you again, HHM! Very helpful and informative.

ep