A business bankruptcy can help you get rid of your remaining company debts when you close the company or can help you save the business by reorganizing your debts. Chapter 7 bankruptcy requires liquidation of company assets to repay creditors, while Chapter 11 bankruptcy involves restructuring.
Pursuing a business bankruptcy could either facilitate the closure of your company or make it easier for you to keep it open in the long run by helping you handle unsecured debts. However, some business owners may find themselves worried about their personal resources when contemplating a business bankruptcy.
Can creditors lay claim to your personal assets after a business bankruptcy?
There are rare situations that could endanger your assets
Creditors who realize they can no longer make a claim against the company’s resources or revenue may instead try to make a claim against you as the owner. A sole proprietorship may leave you vulnerable to such efforts.
Typically, formal business structures or incorporation will protect you from such claims. However, in a scenario either involving financial misconduct or commingling of your personal financial resources with business resources, creditors could try to hold you personally accountable.
They could ask the courts to pierce the corporate veil and allow your personal assets or income to compensate them for the debts owed by your company.
The right bankruptcy process can reduce your risks
Creditors left desperate by a Chapter 7 bankruptcy filed by a business that owes them money may take far more drastic measures than those who may receive some repayment in a Chapter 11 filing.
Creditors who can expect payments from your company may be more cooperative with you than companies facing the immediate discharge of any remaining balance that your business owes. Having professional support as you communicate with your creditors or with the trustee overseeing your business bankruptcy can go a long way toward reducing your risk as an individual when the business that you run either needs to close because it is insolvent or restructure to regain control over its financial obligations.
Carefully reviewing your company’s finances can help you determine if there will be risks and challenges during your bankruptcy. Having the right support during a business bankruptcy will help you make the most of this complex process.