If you are facing financial difficulties, you might be wondering about selling business assets. Selling business assets during bankruptcy can be a way to repay your creditors and eliminate your debts. However, how you sell business assets depends on the structure of your business. Your business structure also determines whether you are personally responsible for any debt your company accrues. Consider speaking with a commercial bankruptcy attorney if you have more questions about selling business assets during bankruptcy.
Chapter 7 Bankruptcy and Liquidating Assets
If a business is having financial difficulties, one option is to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy allows the company to liquidate and sell its assets to creditors to pay its debts. During Chapter 7 bankruptcy, the state will assign a bankruptcy trustee to oversee the liquidation process. This option is ideal for business owners who want to declare bankruptcy and dissolve their business. LLCs and corporations can file for Chapter 7 business bankruptcy.
Sole proprietors generally cannot file for Chapter 7 business bankruptcy. This is because a sole proprietor and their business are not separate legal entities. Instead, sole proprietors must file for Chapter 7 personal bankruptcy. The good news is that some assets, such as home equity or vehicles, are exempt from liquidation in personal bankruptcy.
Chapter 13 Bankruptcy and Selling Assets
Another option for businesses is to file for Chapter 13 bankruptcy. Chapter 13 proceedings allow a business to restructure its debt and create a payment plan to repay its creditors. Chapter 13 proceedings can be extremely complex, and you must stick tightly to the agreed-upon payment plan. The benefit is that it can allow businesses to stay in operation and avoid complete liquidation.
Creditors will still sell any non-exempt assets and take a portion of the business’s income to recover their debts. With Chapter 13 bankruptcy, the debtor must still pay creditors as much as they would have if they had chosen Chapter 7 bankruptcy and liquidation instead.
Can I Personally Be Responsible for Business Debts?
One benefit of having an LLC or corporation is that it separates your personal and business assets. When you file for business bankruptcy in Pennsylvania, creditors are not supposed to be able to come after your personal assets. So you can liquidate your business assets after filing for bankruptcy and preserve your personal assets.
However, it is still possible to be personally liable for business debts. The main exception is if you personally guarantee a business debt. Creditors often will require someone to personally guarantee business debt when they issue loans to businesses. Unfortunately, this practice effectively undermines many of the liability protections that the structures of LLCs and corporations are supposed to grant.
In short, if you personally guarantee business debt, creditors may be able to come after your personal assets after filing for business bankruptcy. This may occur if selling business assets is not sufficient to repay creditors. If you are currently facing bankruptcy and have personally guaranteed business debt, a Pennsylvania bankruptcy attorney can help you assess your rights and legal options.
Bankruptcy and Business Attorneys in Pennsylvania
Filing for bankruptcy is never easy, and it can feel like your entire life is in jeopardy. However, bankruptcy can also act as a kind of clean slate, allowing you to start over and avoid making the same mistakes. An attorney from The Cooney Law Offices can help mitigate the worst consequences of filing for bankruptcy, whether as an individual or a business. Contact us online or call today to speak to a bankruptcy attorney in Pennsylvania.
