If you own a business and need to file for Chapter 7 bankruptcy , you have probably thought about how this will affect your business. If you are running a business as a sole proprietor, partnership or have a corporation, then it is very important that you discuss your business operations and assets with a competent bankruptcy attorney. There are two very important issues that you need to be aware of if you are filing a personal bankruptcy and you own an interest or run a business.
First it is important to determine whether the assets and overall value of the business are protected. There are bankruptcy exemptions that are used to protect assets that creditors are not entitled to touch as part of your bankruptcy. It is important to determine what the value of your business is, to ensure that the business is a protected asset in your Chapter 7 bankruptcy case. There are different methods that can be used to value your business. What method is used to value your business will depend on the particular characteristics of the business. For smaller businesses that involve a sole proprietor, member operated LLC or single shareholder corporation, you may be able to value it based on simply determining market value of assets minus business related expenses. Generally your CPA should be able to provide you with a balance sheet that lists your assets and liabilities. If there is a potential that a third party would want to buy the business then you might consider a formal appraisal. In the majority of cases a formal appraisals are not necessary for smaller businesses.
Once the value of your business is determined you can determine if the bankruptcy exemptions in your state protect the asset from being liquidated as part of your bankruptcy. If it is not a protected asset then you may need to look at possibly filing a Chapter 13 bankruptcy case. If the bankruptcy exemptions protect the value of your business then it cannot be liquidated as part of your bankruptcy.
Another important issue that arises when filing for bankruptcy is whether after filing your bankruptcy case there will be an issue with continuing to operate your business. This is a question that is really dependent on where your case is filed and what the requirements of the trustee in your location are. In the Central District of California which includes Riverside, Los Angeles and Orange County, the trustee's do not require that you stop operating your business for the most part. In some cases the trustee's may require that you carry liability insurance for your business. From my experience in filing hundreds of cases with businesses, I have yet not had a trustee require that my client stop operating his business as a result of filing for bankruptcy. This an issue that varies throughout the country and which trustee's may have different guidelines for you to continue to operate your business after filing for bankruptcy.
It is important that you consult a local bankruptcy attorney to determine what are the trustee's requirements in the area for continuing to operate a business and what are the risks of the business being closed. The attorney can advise you on what actions you can take to ensure that your business continues to operate after filing for bankruptcy.