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Personal Bankruptcy for Business Owners

Many of my clients are small business owners who have a successful business, but for a myriad of reasons, have run into personal financial difficulty. The first question I am generally asked by such clients is whether they can file for Chapter 7 and still keep the business.

Fortunately, the answer is usually yes. This is because although the business may be successful in the sense that it is turning a profit, the liquidation value is usually zero. If the bankruptcy trustee cannot get any value for the business, the business will be retained by the client.

Ask yourself these questions: Could I sell my business? If I sold it, could I get enough money to pay off the creditors of the business and still have money leftover to put into my pocket?

If you answer no to these questions, then you will in all likelihood be able to retain your business in a Chapter 7 case. It is often the case that the business is financed with a working capital, SBA, or other loan which is secured by all of the business assets. Because the loan will need to be satisfied before the business can be sold, a sale will not possible.

Further, the equity of a small business a typically tied up in the owner. Without the expertise and experience of the owner, the value of the business is greatly diminished.

In most cases, the bankruptcy trustee will decide that selling the business is not possible, and will abandon the business back to the client.

Peter Berk