If I Own a Sole Proprietorship, Can I File for Personal Bankruptcy?

When you are struggling with personal debt and run your own small business, there is a good chance that your business is also struggling. This is especially true for sole proprietors in the St. Petersburg area who are trying to run a successful business while managing what can seem like insurmountable debt. For many sole proprietors, the distinction between themselves and their businesses is not always clear, and many sole proprietors want to know if they are able to file for personal bankruptcy if they are also running a small business. In short, owners of sole proprietorships can file for personal bankruptcy, but their business will be part of the bankruptcy case. Our experienced St. Petersburg bankruptcy lawyers can explain in more detail.

Understanding the Connections Between Personal and Business Bankruptcy 

How do personal bankruptcy filings connect with or affect business bankruptcy filings, and vice versa? In most cases, they do not have an impact on one another, which is why it can be difficult to understand how a personal bankruptcy affects a sole proprietorship. In short, most types of business structures (i.e., the way the business is formed when it is created) make the business its own separate entity. Partnerships, LLCs, and corporations are their own separate entities, so one of the business owners filing for personal bankruptcy does not impact the business. However, sole proprietorships are structured differently.

For legal purposes, and bankruptcy purposes in particular, a sole proprietorship is not an entity that is separate from its owner. For all intents and purposes, a sole proprietor and the sole proprietorship are one and the same. Accordingly, if the business owner needs to file for bankruptcy, the bankruptcy will also include all debts and assets of the sole proprietorship. Likewise, if the sole proprietorship is struggling financially and the owner wants to file for bankruptcy for the business, the bankruptcy will also involve the owner’s personal assets and liabilities.

How Personal Bankruptcies Work When the Debtor is a Sole Proprietor 

If you own a sole proprietorship and are considering personal bankruptcy, it is important to understand what to expect in terms of the bankruptcy process. As we noted above, your bankruptcy case will need to include your personal assets and liabilities, as well as those of the business — there is no distinction between the two in a bankruptcy case. What will this mean for the business and its future? The answer to that question usually depends in large part on the type of bankruptcy.

If an individual files for Chapter 7 bankruptcy — liquidation bankruptcy — all non-exempt assets will need to be liquidated in order for the debtor to receive a discharge. This includes business assets. As such, the business will need to close. However, if an individual files for Chapter 13 bankruptcy — a reorganization bankruptcy — all business debts can be incorporated into the repayment plan, and the business can remain open throughout the process.

Contact a St. Petersburg Bankruptcy Attorney Today 

If you have any questions about filing for bankruptcy in Florida, including inquiries about filing for personal bankruptcy as a small business owner, an experienced St. Petersburg bankruptcy lawyer at the Law Offices of Stephen Barszcz can assist you. Contact us today to discuss your financial circumstances and to learn more about your bankruptcy options.

Source:

law.cornell.edu/uscode/text/11