Filing for small business bankruptcy in Ohio comes with many challenges, more so than filing for personal bankruptcy. That is why you need to know exactly what you expect before starting this process, especially if you want to keep your small business up and running.
Are you worried about losing your business if you file for Chapter 7 business bankruptcy in Ohio? If so, check out this article, where we will discuss what to expect when filing for small business bankruptcy in Ohio and what this could mean for your livelihood.
Business Structure Matters
Before moving forward with either Chapter 7 or Chapter 13 business owner bankruptcy in Ohio, you need to understand the logistics of this process. One thing that makes bankruptcy unique for small business owners is the impact of business structure.
For example, sole proprietorship or general partnership businesses usually result in you being held liable for business debts. And although this may sound like a bad thing, this could help you get these debts wiped out by filing the right type of bankruptcy.
On the other hand, if your business is a corporation or LLC, you aren’t automatically held liable for the business debts. You are only liable for debts that you have personally signed for or guaranteed. So, depending on the types of debts, you may have to file for business bankruptcy to get debt discharged for corporations or LLCs.
Chapter 7 and Small Businesses
The most common type of bankruptcy is Chapter 7, which is available for both personal use and business owners. So, if your business is a partnership, corporation, or sole proprietorship, you have the option of filing under Chapter 7. Just keep in mind that business entities aren’t eligible to receive a discharge in the same way that individuals are.
Also, although Chapter 7 bankruptcy can help eliminate many business-related debt, it can also result in asset liquidation for sole proprietors. This is done for the purpose of paying back creditors with any available resources.
Sole proprietors may also be required to stop all business proceedings after filing for Chapter 7 bankruptcy. Not only can this be detrimental to your business as a whole, but it also means that your income will stop, limiting your ability to maintain your financial responsibilities. In some cases this may be temporary, but in others, you may never be able to reestablish your business.
Chapter 13 and Business Owners
Small business owners considering bankruptcy in Ohio also have the option of filing for Chapter 13 bankruptcy. However, this does have one significant limitation as it only applies to sole proprietors and you have to file as an individual, not a business.
That being said, Chapter 13 can be a good alternative, especially if you want to keep your business operating throughout your bankruptcy case. Because of this, many business owners consider Chapter 13 to be the best option if they want to keep their business.
Additionally, Chapter 13 is a repayment plan type of bankruptcy, so a manageable repayment plan will be created, allowing you to pay back your debts over a 3 to 5 year period. Throughout this timeline, you will be protected by the automatic stay and will be able to continue running your business relatively uninterrupted.
Chapter 13 also provides better protection from having business assets seized by the bankruptcy trustee, which is a significant risk when you file for Chapter 7.
Exemptions and Asset Protection
The number one thing business owners need to know about when filing for bankruptcy is exemptions. Ohio has a variety of exemptions that apply to different individuals who are filing for bankruptcy. And although your options as a business owner are a bit limited, you may still qualify for some of these helpful resources.
The best exemption you most likely qualify for is the tools of the trade exemption that helps to protect any business, occupation, or tools of the trade assets up to a certain amount. So, if you are filing for Chapter 7, this can help you protect essential business equipment that you will need when your business is back up and running.
You should also consider consulting with an Ohio bankruptcy lawyer, as they may be able to help you find additional exemptions you qualify for. Especially for business owners filing for personal bankruptcy, it is very likely that you will qualify for additional exemptions that can help you protect your assets and financial resources.
FAQ Section
Can I keep operating my business during bankruptcy?
Usually, if you file for Chapter 7 bankruptcy, you will not be able to continue running your business after filing, at least temporarily. However, if you file for Chapter 13 bankruptcy, you can continue running your business as usual.
Will the trustee take my business equipment?
For Chapter 7 bankruptcy, business equipment is often used to pay back creditors. So, it is very likely that the bankruptcy trustee will seize certain business assets if they can be used to pay off outstanding debts, even if they are an essential part of your business.
Can I file a personal bankruptcy if my business has debt?
Yes, many small business owners file for personal bankruptcy even if their business technically has debt as well. This is usually the case if you have personally signed off on the business-related debt instead of using the name of your business, which is often the case for sole proprietors.
Does bankruptcy ruin my ability to run a business in the future?
Not necessarily. It is still very possible for you to run a business in the future after filing for bankruptcy, just keep in mind that this may make it harder to qualify for certain financial resources, such as business loans.
Hire a Bankruptcy Attorney in Ohio
To protect your business when filing for bankruptcy, there are several things you should be aware of before getting started. Richard P. Arthur, Attorney at Law, has extensive experience handling bankruptcy cases in Ohio and can help you choose the right option for your situation. To proceed with your case, contact us today at 937-254-3738 for a free consultation.