The rules for small business owners or self-employed individuals are a little different when it comes to filing bankruptcy. If you need to file personal bankruptcy in NYC, then your business will come up during the bankruptcy proceedings, whether you are the sole proprietor or your business is incorporated. In either case, the business is an asset (or multiple assets) that you are required to disclose.
Depending on what type of bankruptcy you file, your business assets may or may not be protected. Here’s what you need to know to protect your business when filing for bankruptcy.
Sole Proprietors Watch Out
It is difficult to place a value on a sole proprietorship in general. As the only employee, you are likely selling a service or product that only you can offer, so the monetary value of the business itself is questionable for anyone who isn’t you. However, sole proprietors are not legally permitted to differentiate between what they own and what the business owns. Any property, equipment, stock, materials, investments, supplies, or anything else owned by the business can be considered your property in a bankruptcy hearing.
There are some very small exemptions that protect certain tools of the trade from bankruptcy – but these don’t add up to much in New York. A Chapter 7 bankruptcy involves a liquidation of your assets, so if you want to protect your assets from being seized, it may be better to explore a Chapter 13 bankruptcy instead.
However, there is one big benefit to filing a Chapter 7 as a sole proprietor: it also wipes out the business’ debts. If you are able to use exemptions to protect your business assets, then this could be a very good option for getting a totally clean slate for both you and the business.
Incorporations Get a Break
If you have incorporated your business before now, then you are in a much better place when starting your bankruptcy filing. The business is considered its own legal entity, allowed to own property that you do not. The only thing that could be considered your asset is stock in the company that could be seized and liquidated.
It’s also important to know that if the business is its own entity, then it has its own legal ability to file for bankruptcy. However, businesses cannot file a Chapter 13. So, if you are considering filing bankruptcy for the business itself, be aware that the business’ property and assets could be liquidated. This is one situation in which sole proprietors have a slight advantage over incorporations; they do have the opportunity to file in a way that protects all assets from seizure throughout the bankruptcy process.
There are pros and cons to both sole proprietorship and incorporation when it comes to bankruptcy, but for the most part, this won’t help someone who is currently considering filing for bankruptcy in NYC. Your business is already either solely owned or incorporated. The most important things to know are that a Chapter 13 protects your assets but doesn’t wipe away your debts; and that a Chapter 7 gets rid of debts, but doesn’t protect your assets. There are ways to exempt assets with a Chapter 7, however, which is why it is so important to work with an experienced bankruptcy lawyer in this situation.
If you are a small business owner needing to file bankruptcy, don’t let your livelihood be taken from you. Call my office at 212-244-2882 to find out how you can protect your business while filing personal bankruptcy in NYC.