So what do you do if your small business
is failing and you realize that you’re going to have to shut the doors but
you’ve got creditors coming after your business? Do you file bankruptcy on the
business? Watch our next video and find out! So I probably get this question at least
two or three times a week someone will call in and they will announce to me
that they need to file a business bankruptcy so whenever I hear this my
radar goes up real quick because probably 99.9% of the time you know they
don’t really need to file a business bankruptcy they probably need to file a
personal bankruptcy because they’ve personally guaranteed probably their
business least credit cards maybe a business loan so they’re definitely
probably looking at a personal bankruptcy but most of the time it
doesn’t make sense to file a business chapter 7 bankruptcy and here’s why a
business does not receive a discharge of their debt like a person the whole point
of doing a business chapter 7 bankruptcy is simply to allow a trustee to step in
liquidate whatever assets that business has and make a distribution to the
creditors so if you have a business that has made me a lot of inventory equipment
whatnot it really may make sense for you to do a chapter 7 bankruptcy just to
allow a nice winddown of the business so a chapter 7 trustee would step in they
would auction your equipment your inventory even intellectual property if
there was value to it so so they would step in and do all of that pay the
creditors and then they close the case and for a lot of folks I get it they
just want a nice tidy bow on it to say I’m done the business felt bankruptcy
there’s nothing else to do but understand if your business doesn’t
really have any assets um you’re basically just paying an attorney to
file this for your piece of money and maybe that’s worth it to you I always
like to just tell my clients set up front because they don’t ever want
anyone to think that I’m not being you know completely honest with them and
then I’m just trying to make attorney fees you know for filing this case
because the whole purpose again is doing a liquidation and just repayment of
creditors but most of the entrepreneurs or small business owners that I work
with and their company is if it’s a services company or whatnot and there’s
no assets you know you can’t sell a person so there’s there’s no asset that
can be liquid to be distributed accreditors so if
you’re if you’re having problems with your business you know definitely there
may be personal guarantees because most most small business owners have to file
you know sign of personal guarantee so that business credit card that you have
even if it’s not popping up on your personal credit reports a lot of times
they don’t chances are you had to provide your social and your personal
guarantee to that card so once your business defaults they will come after
you if you signed a lease most landlords will make you personally sign leases for
this very reason so that they have someone to go after if a business folds
so those may be very real reasons where you need to you know look at filing a
bankruptcy personally also you do need to keep this in mind when a business
files a chapter 7 bankruptcy of business is a separate legal entity so the
trustee will step in and they will look at the business records or whatnot and I
have seen this not with my clients but I’ve seen it in bankruptcy court room
where a person will file a bankruptcy for their business but then that when
the trustee looks at distributions that the the business made to this to the
owner the trustee will go after the owner to claw back some of that money
because it’s it’s deemed to be you know a preferential transfer you know it
wasn’t just a regular salary you know the the owner pulls out a hundred
thousand dollars and then files bankruptcy in the business well of
course the trustee is going to go after that so they can pay the creditors so
sometimes I’ve seen people file a bankruptcy for their business because
they think they’re doing the right thing and they really just shot themselves in
the foot whereas if they just you know if they had just filed a personal
bankruptcy later they would have been fine
but now in their own business they have they’ve got a trustee coming after them
to take money that they’ve received and sometimes you know maybe the the
withdrawals or the drawers were we’re kind of sporadic but you know that it
was because that’s how they were paying themselves but they’ve now created this
huge headache for themselves and it’s gonna be expensive because you’re gonna
have to have legal counsel to just sort through all of that so you know if
you’re thinking about filing a business chapter 7 you really really really
need to evaluate if it’s necessary and of course every case is different and
we’re always happy to sit down and take a look and go over concerns and I have
some clients I just did a case a business case a few weeks ago and the
client was like you I hear you I know everything you’re saying I’ve already
gone through my books there’s been no crazy withdrawals or whatnot
I just want to wind this down and and that’s fine but just make sure before
you do embark on a business chapter 7 bankruptcy that you look at all the
angles if you have ever have any questions about business banker chapter
7 bankruptcy or any bankruptcy questions in general don’t hesitate to contact us