When a business declares bankruptcy, it can be scary for the owners. All of their hard work has gone down the drain, and they may not know what will happen next.
One of the biggest questions on people’s minds is what happens to their personal assets? Will they lose everything they have worked for?
What are the different types of bankruptcies?
Bankruptcy is a legal process that provides debt relief for individuals, businesses, and other entities unable to repay their debts. There are several different types of bankruptcies, each with its own eligibility requirements and procedures.
The most common type of bankruptcy is Chapter 7 bankruptcy, also known as liquidation bankruptcy. In a Chapter 7 bankruptcy, the debtor’s assets are sold, and the proceeds are used to pay off creditors. Other types of bankruptcy include Chapter 11 bankruptcy (reorganization bankruptcy) and Chapter 13 bankruptcy (adjustment of debts of an individual with regular income).
If your business is a sole proprietorship or partnership and you declare bankruptcy, you may need to use your personal assets to pay off business debts.
If your business is a corporation or limited liability company, your personal assets are typically protected from creditors. However, there are some exceptions. For example, if you have personally guaranteed a loan for your business, the creditor may be able to seize your personal assets to repay the debt. Additionally, if you have commingled personal and business funds, the court may allow creditors to go after your personal assets to satisfy business debts.
Bankruptcy is a complex legal process, so if you are considering filing for bankruptcy for your business, you need to discuss your options with someone who can help protect your interests.