If you are in over your head with your business, you may be wondering if you should file for personal bankruptcy or corporate bankruptcy. There are distinct differences that will lead to your answer.
Some people think that they need to file bankruptcy for their business because they can pay all of their personal bills just fine. But that may not be the case if you discontinue your business and still have bills keeping you from staying above water. The financials for small businesses are not always clearly separated from personal finances.
4 Differences in Business and Personal Bankruptcy
When you have a small business that is not profitable and racking up the bills that you cannot pay, it’s time to find a way to get out of the mess. If bankruptcy is your answer, should you file for personal or business bankruptcy?
Take a look at what sets them apart:
1. Personal Bankruptcy: Chapter 7 and Chapter 13 are most typically for personal bankruptcy. With Chapter 7, you do not have to pay back the debt. With Chapter 13, your assets are liquified and divided to the creditors.
2. Corporate Bankruptcy: Chapter 7 and Chapter 11 are for corporate bankruptcy. With Chapter 7, your company is dissolved and does not stay in business. Chapter 11 is for a reorganization of the business where you can communicate with creditors and work out a payment plan.
3. Communication Limits: With personal bankruptcy, you don’t have a chance to cancel debts that are exempt from bankruptcy, like student loan debt. With corporate bankruptcy, you can communicate with the creditors and cancel the debt if beneficial to both parties.
4. Means Test: In Chapter 11 bankruptcy, you do not have to pass a means test. With personal bankruptcy, you have to prove that you cannot continue down the road of debt.
If you need help determining what kind of bankruptcy filing is right for your situation, you can meet with Miles & Hatcher, LLP. Our team will sit down with you for a free consultation. Call today to get started: (909) 481-4080.