How Will Bankruptcy Affect My Personal Assets as a Small Business Owner?
Filing bankruptcy for your small business may or may not impact your personal assets, depending on your company’s structure and the type of bankruptcy you file.
If you are a small business owner and your company is struggling with debt, you may have already considered filing for bankruptcy. Just like consumers who file bankruptcy, you may also wonder if filing bankruptcy for your business will put your personal assets at risk. These concerns are understandable, and what happens to your personal property will depend on certain factors.
How Your Business Structure Impacts Personal Liability
The type of business structure you choose when starting your business will significantly impact how your personal assets are affected during the process.
- Sole Proprietorship: In a sole proprietorship, where there is a single owner and operator, no legal distinction is made between personal and business assets. As such, your personal assets may be at risk if your business files, particularly if you file Chapter 7. Although businesses are typically barred from filing Chapter 13, this is not true for sole proprietors, and this type of bankruptcy can protect your personal property.
- Partnership: Whether bankruptcy will impact your personal property in a partnership depends on the terms within the partnership agreement. General partners are typically held personally liable for debts incurred by the business, but limited partners usually have a certain level of protection.
- Limited liability company (LLC): The personal property of members of an LLC is generally protected in bankruptcy. There are exceptions, though, for fraud and personal guarantees.
- Corporation: In most situations, the shareholders, directors, and officers in a corporation are not held personally liable for business debts.
It is important to note that regardless of your business structure, your personal assets may be at risk if you provide a personal guarantee. If you have a written promise that you will personally guarantee a debt, your property is not protected when you file for bankruptcy.
How to Protect Your Personal Property in Bankruptcy
If you are a small business owner and are concerned about protecting your personal property during bankruptcy, there are tips you can follow. These include:
- Choose a corporation or LLC structure to protect your personal property.
- Speak to an attorney about whether your home is eligible under the homestead exemption in Florida.
- Do not provide a personal guarantee or promise your personal property as collateral for debt.
- Keep your business and personal finances separate.
Our Bankruptcy Lawyer in Florida Can Advise You of Your Options
There are many factors to consider when filing for bankruptcy, including how it will impact your personal property. At Brian K. McMahon, P.A., our Florida bankruptcy lawyer can advise you of your legal options, help you determine which one is right for you, and guide you through the process so you obtain the best result possible. Call us today at 561-658-1789 or fill out our online form to schedule a free consultation and to learn more about how we can help.