Business owners in California could lose their business assets if they file for personal bankruptcy under certain circumstances. Whether your bankruptcy places your business in jeopardy will depend on the type of bankruptcy you file, the structure of your business, and the value of the assets. The Bankruptcy Group has years of experience helping business owners through difficult financial times and can assist you. Our Roseville bankruptcy attorney takes a closer look at business assets in a personal bankruptcy below.
Disclosing Your Business Assets in a California Bankruptcy
Every debtor must list all their assets and sources of income on their bankruptcy schedules. This information is required, no matter if you file for Chapter 7 or Chapter 13. It is also public information, so your creditors and the trustee will have access to your information. Our Sacramento bankruptcy attorney will work with you in listing and valuing your business assets, including equipment, vehicles, tools, shares, and stocks.
How Does Chapter 7 Affect a California Debtor’s Business Assets
What happens to your business assets will depend on the type of bankruptcy that you file. The most common type of bankruptcy in California is Chapter 7. Any asset that a debtor owns becomes part of the bankruptcy estate. Unless you can exempt your assets under applicable state or federal law, a court-appointed trustee can sell your property and disburse the proceeds to your creditors.
In Chapter 7, the trustee will look at the cost of dissolving and selling a business, including how much the assets would sell for and whether they are exempt. Selling the business will have to make financial sense, so if there are not enough nonexempt assets to make it worthwhile, a trustee will not liquidate a company.
Whether you can keep your business assets will depend on the type of business structure, exemptions available, and your other assets. California provides two systems of exemptions for a debtor. Our California Chapter 7 bankruptcy attorney will thoroughly review your assets, both business and personal, and advise you on which set of exemptions will better suit your financial goals. In some cases, filing for Chapter 13 might be a better option.
How Does Chapter 13 Affect a California Debtor’s Business Assets
Unlike Chapter 7 bankruptcy, a Chapter 13 debtor will restructure their debt. This means that the debtor will be required to pay back their debt, while possibly eliminating a portion of it. Our California Chapter 13 bankruptcy attorney will calculate what needs to be paid by reviewing the amount of your debt, the type of debt, your income, and the total value of your nonexempt assets.
While a Chapter 13 bankruptcy does not require the liquidation of assets, a debtor must propose a three to five-year payment plan. Your nonexempt business assets determine part of what you must pay. A Chapter 13 bankruptcy is designed to ensure unsecured debtors are paid what they would have been if your assets were sold in a Chapter 7 bankruptcy. Therefore, a debtor must pay the value of their business assets to their creditors through their bankruptcy plan. If you are unable to afford the payments, your Chapter 13 bankruptcy could be dismissed, and our office might advise converting your case to Chapter 7.
How Does Your Business Structure Affect Assets in a California Bankruptcy?
The structure of your business will also affect how the assets are handled in bankruptcy. Remember, the trustee can only liquidate the assets in Chapter 7. In Chapter 13, the value of your assets will dictate how much you will be required to pay through the bankruptcy plan.
If a debtor’s business is a sole proprietorship, a bankruptcy trustee might require suspending operation until an assessment could be made of the value, possible exemptions, and potential sales price of any business assets. This will also prevent the business, or the debtor, from incurring additional liabilities during the pending bankruptcy case. It will also protect you from any legal claims – such as a slip and fall lawsuit.
If your business operates without many assets, such as a consultant, you could be allowed to continue working. However, any income from the business is part of the bankruptcy estate. Our Folsom bankruptcy attorney will review your options before filing your case.
Partnerships and LLCs: Can Personal Bankruptcy Affect Your LLC?
If the debtor is in a partnership or a member of an LLC, their portion of the business will become part of the bankruptcy estate. The trustee is prohibited from taking assets or interfering with the operation of a partnership or LLC.
However, if you are a member of an LLC or in a business partnership, you likely signed an agreement that requires you to sell or terminate your ownership interest if you file for bankruptcy. Before filing, our Sacramento small business bankruptcy attorney will review business paperwork. Any violation of an ownership agreement could open you up to potential lawsuits from your business partners.
Single-Member LLCs and Corporations
Your corporate shares or LLC membership is part of your bankruptcy estate. If you are the majority or sole owner of an LLC or corporation, the trustee is entitled to take over your shares or membership. The bankruptcy trustee can then vote to sell the business, distributing the assets among any business creditors.
Call Our California Bankruptcy Attorney if You Have Questions Regarding Your Business Assets
Bankruptcy is a valuable tool for individuals across California to eliminate or restructure their debt. If you have substantial business assets, then the process is more complicated. To ensure you are taking advantage of the protections provided by the law, you need our experienced California bankruptcy attorneys working at your side and are prepared to answer your bankruptcy questions. Call The Bankruptcy Group at 1-800-920-5351 to schedule a free appointment and review your circumstances.