Having a business always adds complication to a bankruptcy. When you go bankrupt, you agree to give your assets to the bankruptcy. The answer is depends on whether the business is a sole proprietorship, partnership or incorporated.
First let’s discuss if the business is a sole proprietor or partnership. You and the business are the same legal entity for bankruptcy purposes. That means, with some limitations, any equipment or tools owned through the business belong to the bankruptcy. That could mean that if your business has more assets than it’s allowed, you would have to surrender the excess assets. You are probably joint on the debt with the business, so if you go bankrupt it would limit the business’s ability to continue to operate since it would have no more credit. If it is a partnership, the debt would now be the responsibility of the partner.
Now let’s discuss what happens if your business is incorporated. Your ownership of the business is your asset and as I mentioned before, when you file bankruptcy, you surrender your assets. That means you surrender you ownership in the business. However, you can file a consumer proposalwhich doesn’t affect the ownership in your business.
Lets now look at another scenario. Joe’s business is Joe’s Drywall. He works as a subcontractor for whichever contractors have work. Joe is the business. He is one who does the work, bills the contractor and receives the money. He has some tools, but they fall within what he is allowed to keep. Does this mean if Joe files for bankruptcy he can no longer work? No it doesn’t. Joe can continue to earn his living.
As sometimes happens, there isn’t a yes or no answer to the question. If you have a business and you are thinking about filing personal bankruptcy in Chatham, call us at 310-PLAN to book a no charge consultation to review what effect bankruptcy would have.
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