Do I Need to List My Business Assets in My Personal Bankruptcy?

TRI Writer • February 5, 2020

listing business as bankruptcy asset, tennessee and georgia bankruptcy attorneyIf you are considering filing personal bankruptcy, and you also own a small business, there are a few things you need to know. One common question is whether or not business assets need to be listed as assets in the personal bankruptcy filing. However, there are many more questions that bankruptcy petitioners just like you faced when they contemplated petitioning the court for a bankruptcy discharge.

Filing personal bankruptcy can take a toll on businesses owned by the petitioner. How much the personal bankruptcy affects the business depends on the legal structure of the business and the type of bankruptcy petition that is filed with the bankruptcy court. There are two types of bankruptcy filings for individuals: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy & Your Business Assets:

Chapter 7 is the most common type of bankruptcy filing. Chapter 7 is often referred to as a liquidation bankruptcy because the court-appointed Trustee oversees the liquidation of the filer’s non-exempt assets to satisfy debt claims. During a Chapter 7 bankruptcy, the petitioner’s business could be considered an asset to be liquidated.

Chapter 13 Bankruptcy & Your Business Assets:

Chapter 13 bankruptcy is the second type of bankruptcy filing. Chapter 13 is often referred to as a reorganization bankruptcy. In a Chapter 13 bankruptcy, the petitioner’s creditors agree with the bankruptcy trustee on settlement or repayment plans that take into consideration the petitioner’s assets, debts, and sources of income. Sole proprietors or individuals owning shares in a corporation can file a personal Chapter 13 bankruptcy and list property interest in schedule B to exempt the equity/property interest they have in the corporation.

In a Chapter 13 bankruptcy, the court mandates a strict repayment plan with accompanying personal living budget. The filer must agree to abide by the repayment plan and budget and they may be in place for several years. Business ownership assets could be affected since some portion of the funds for debt repayment are likely to come from the business.

How Your Business is Structured Could Affect Bankruptcy Outcome:

Small businesses generally have one of three legal organizations: sole proprietorship, an LLC (limited liability corporation), or a corporation.

Sole Proprietorship: When a business is operating as a sole proprietorship, the law does recognize a distinction between the owner and the business. The court will generally regard the business as just another personal asset to be liquidated.

LLCs or Corporations: LLCs and corporations are legally recognized as separate entities, so if an individual with corporate interests in these types of entities declares bankruptcy, only the bankruptcy filer’s portion of the business is affected. The business continues to operate, and the petitioner’s equity in the business becomes an asset in the bankruptcy.

If you are a business owner considering bankruptcy and you need to discuss the pros and cons, please don’t hesitate to get in touch. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one in the Chattanooga area with two! You are in good hands with Kenneth C. Rannick P.C.

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Are you a Tennessee resident facing financial challenges and considering bankruptcy? If so, you may have heard about a relatively new option called Subchapter 5 bankruptcy. But what exactly is Subchapter 5 and how does it differ from traditional Chapter 11 bankruptcy? More importantly, what benefits does it offer to individuals and small businesses?  In this blog post, we will explore the world of Subchapter 5 bankruptcy and shed light on its advantages for Tennessee residents. Whether you're a struggling entrepreneur or an individual burdened by overwhelming debt, understanding the potential benefits of Subchapter 5 can help you make informed decisions about your financial future. What is Subchapter 5 Bankruptcy? Subchapter 5 is a relatively recent addition to the United States Bankruptcy Code, specifically designed to provide a streamlined and cost-effective bankruptcy process for small businesses and individuals. It was created as part of the Small Business Reorganization Act (SBRA) in 2019, with the aim of increasing accessibility to Chapter 11 bankruptcy relief. The Benefits of Subchapter 5 Bankruptcy Simplified Process: One of the key advantages of Subchapter 5 is its simplified and faster bankruptcy process. Unlike traditional Chapter 11 bankruptcy, which can be complex and costly, Subchapter 5 offers a more streamlined approach that is better suited for small businesses and individuals. Retention of Ownership: Under Subchapter 5, business owners have the opportunity to retain ownership and control of their company while developing a repayment plan. This allows for greater flexibility and the ability to restructure debts without losing ownership interests. Reduced Plan Requirements: Subchapter 5 eliminates certain stringent plan requirements that are typically associated with traditional Chapter 11 bankruptcy. This simplification of the plan process makes it more accessible to small businesses and individuals. Debt Repayment Plan: Subchapter 5 allows for the development of a debt repayment plan based on the individual's or small business's disposable income. This plan spans over three to five years, making it more manageable and achievable for debtors. Creditor-Friendly Approach: Subchapter 5 encourages creditor participation and collaboration, promoting consensual resolutions and a more amicable environment. This can lead to increased cooperation, reduced litigation costs, and ultimately, a more successful restructuring process. Subchapter 5 vs. Chapter 11 Bankruptcy: Understanding the Difference While both Subchapter 5 bankruptcy and traditional Chapter 11 bankruptcy share some similarities, there are significant differences between the two. The primary distinction lies in the complexity, cost, and requirements associated with each option. Subchapter 5 offers a more simplified and accessible bankruptcy process specifically tailored to the needs of small businesses and individuals, while Chapter 11 is better suited for larger businesses with more complex financial structures. If you're a Tennessee resident grappling with financial difficulties, Subchapter 5 bankruptcy may provide a viable solution. Its streamlined process, reduced plan requirements, and debtor-friendly approach make it an attractive option for small businesses and individuals seeking relief from overwhelming debt. Before making any decisions, it's essential to consult with a qualified bankruptcy attorney who can guide you through the process and help determine the best course of action for your specific situation. Remember, bankruptcy is not a one-size-fits-all solution, and the outcome will depend on various factors. However, understanding the potential benefits of Subchapter 5 bankruptcy can empower you to make informed decisions about your financial future. At Kenneth C. Rannick, P.C., we specialize in bankruptcy law and can provide the guidance and support you need during challenging times. Contact us today to schedule a consultation and explore your options for a fresh start. Take control of your financial future with Subchapter 5 bankruptcy. Let us help you navigate the path to a brighter tomorrow.
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