How does filing a personal bankruptcy effecta sole proprietorship business?
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How does filing a personal bankruptcy effecta sole proprietorship business?
Asked on October 21, 2010 under Bankruptcy Law, Texas
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
A sole proprietor IS the business and vice versa. In a corporation or an LLC, the business is separate legal entity. The bankruptcy of the owner doesn't necessarily directly affect the business and vice versa. However, there is no separate and distinct entity when a business is sole proprietorship; the business and proprietor are, legally, one. Therefore, if you file for bankruptcy, you are filing for ALL your debts, business and personal; if you file ch. 7, all your assets, including business assets, are potentially available (subject to exemptions) for the benefit of creditors; if you file chapter 13, business income and expenses will be considered in determining what you can afford to pay; etc. So filing as a sole proprietor is filing on everything you own and all your debts and assets, whether you think of them as part of your business or not--since you and your business are the same.
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