SHOULD I FILE CHAPTER 7 BANKRUPTCY ON MY CLOSING BUSINESS?

Small business owners have had a difficult time making their business profitable in an uncertain economy these last few years. Many have had no choice but to shut down their business. They are then left with debts in the name of their business, Limited Liability Company (LLC), or corporation. Most of these debts usually have a personal guarantee, which means creditors can sue them personally for the business debts. Clients will then file a personal bankruptcy to eliminate any personal liability for the business debts, and will assume the problem is solved since a creditor will not bother to sue a closed company. That is not always the case.

Even though the corporation or LLC is closed, many creditors will still file a collection lawsuit against the business. As an officer or member of the company, you are not relived of your responsibilities to the business. You cannot be held personal responsible for the debts if you filed personal bankruptcy, but you have to spend the time and expense of responding to the lawsuit or a subsequent judgment. This may include spending time gathering and producing documents, answering questions, depositions, as well as the costs and attorney fees to comply. If you don’t cooperate, you may be held in contempt of court.

That is why considering the time and money you will have to spend on one or more collection lawsuits, it may make more sense to file a chapter 7 bankruptcy for the corporation or LLC, in addition to a personal bankruptcy.

Each case is unique. That is why we recommend talking to an experienced bankruptcy attorney to decide whether filing a chapter 7 bankruptcy for the business is appropriate. We handle these cases on a regular basis. If you have questions regarding debts on a dissolved, or a business you are considering closing, please feel free to contact us anytime.