Your Small Business in Your Personal Bankruptcy

If you own or operate a small business and are considering filing a personal bankruptcy, there are a few things you should be aware of.  

First, the existence of the business will complicate things.  Most attorneys will charge more for your bankruptcy because it will take more time to prepare the filing and administer the case.

Second, your interest in the business is an asset.  Even if the business is a separate entity, like a S-corp or C-corp, and owns all the equipment and debt, you still own the stock.  And the stock has a value, directly tied to those assets and debt.  The trustee will want to know what that interest is worth.  To establish that, you'll have to provide tax returns for the business (if it's separate from your personal returns), a profit and loss statement, and a list of assets and recent transfers for the business.  If you don't already have a good accountant, get one.

Also, keep in mind that a personal bankruptcy filing will discharge your personal liability the business debts, but it won't discharge a corporation or limited liability company unless it too files a chapter 7.  The corporation does, however, have the ability to fold up or take other state law action to liquidate its assets.

Finally, be aware that certain personal business debts, like "trust fund taxes" incurred by failing to pay employee withholding tax or sales tax, will not be discharged.