Can Small Business Survive Owner's Personal Bankruptcy?

Many bankruptcy clients during the current recession own a small businesse, and they are concerned about the impact of their personal bankruptcy on their business. Can they continue to own and operate their small business while filing personal bankruptcy to discharge personal credit card and other unsecured debts. In most cases, their business will survive. In a typical business-owner bankruptcy the debtor’s business is not providing enough income to service the owner’s personal debts. The business may have customers and a few assets, but the business usually also has debts owed to suppliers and the business landlord. Most small business weakened by the recession are technically insolvent because whatever assets it owns is less than its liabilities. In a personal bankruptcy the debtor’s "business assets" is not those assets owned by the business; the owner’s asset is his stock or other interest in the business. If the owner states that his interest in his own business has no market value, then the debtor lists his stock on his individual petition at zero.

If an independent third part would not pay to purchase the debtor’s interest in the business, then the bankruptcy trustee likely is not going to be able to liquidate the stock and would not anticipate recovering from the business any money to pay the debtor’s personal creditors. The trustee will not pursue the debtor’s stock in his business if the stock has no value. If a bankruptcy trustee does not want the stock for benefit of the creditors, the debtor may retain his stock and continue to operate his business. Of course, the business’ own creditors can pursue assets owned by the business. The debtor’s individual bankruptcy does not stop business creditors, provide the business creditors cannot pursue the debtor personally. Nevertheless, if the business can make money to survive after the debtor’s personal bankruptcy, the debtor would retain the benefit therefrom.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida

Comments

[Tye Van Buren]

but if the business has assets, like tools, then the Trustee can take the shares, liquidate the tools, and take the money for the benefit of creditors, right?