Chapter 7 bankruptcy allows you to get rid of most of your unsecured debts. However, it also liquidates your nonexempt assets to pay off your creditors.
If you are a business owner considering a personal Chapter 7 bankruptcy, you might be worried about losing your business entirely.
Unfortunately, many filers have to sell their business to pay their debts. However, this does not mean you cannot protect some of your assets.
What assets can you exempt from bankruptcy?
States allow filers to exempt certain assets from bankruptcy. In Florida, these include:
- An unlimited amount of home equity for certain properties (homestead exception)
- Personal property up to $1,000 or $4,000 if you do not use the homestead exception
- Savings for health care, education and hurricanes
- Prescribed health aids
- Health savings accounts
- Tax credits and refunds
- Some business partnership property
- Motor vehicle equity up to $5,000
Florida’s exemptions are relatively generous compared to other states. Generally, you may be able to keep your home, personal property, some savings and a modest vehicle, which are mostly things one needs to start fresh.
Can you use exemptions to protect business property?
Yes, it is possible, but it will depend on the type of business you have. If you are a sole proprietor, you may be able to exempt assets like equipment, inventory, accounts receivable and more.
Moreover, the bankruptcy trustee cannot sell your future services or income, which is beneficial if your business is labor-based.
For example, if you have a personal training business, the trustee generally cannot sell your business because your labor is the primary source of income.
You may also be able to protect “tools of the trade,” such as work equipment, a work vehicle or even knowledge sources like books.
Corporations and partnerships are more complex. If you have a corporation or limited liability company, the company owns the assets, not you. You own shares, which you may be able to protect using exemptions.
For a partnership, you may be personally liable for business debts, which the bankruptcy court may include in your Chapter 7. You may also lose ownership if your partnership agreement includes a dissolution clause if one of you files for bankruptcy.
In any case, it is highly advisable to consult a bankruptcy lawyer. They can help you understand your legal options and protect as many assets as possible. Remember, bankruptcy can be a life-changing event, but that doesn’t mean you have to lose it all.