Tuesday, July 5, 2011

Can You Include Business Debt in a Personal Bankruptcy?

Yes you can. Many struggling small business owners will turn to bankruptcy to get business debts discharged, and sometimes, to minimize financial liability when closing down or liquidating a small business.

Further more, if more than fifty percent of your debt is tied to your business, you can file for chapter 7 without having to pass the means test. This means that you can get around the income requirements for chapter 7 and avoid a chapter 13 and the associated payment plan.

Options for a Business Owner in Bankruptcy
Depending on the long-term outlook of your business, you can either file a straight chapter 7 or restructure your debt in a chapter 13. The best option depends on whether you want to continue operating your business or not.

Chapter 7
If you elect to liquidate your business and move on, then a chapter 7 is the easiest way to cancel your liabilities to repay debt. If you have significant assets tied to your business, then they may be liquidated to repay some of you debts.

Chapter 13
If you intend on continuing your business operations, then a chapter 13 is the better option. Here, you can get into a court approved and administered monthly payment plan. This allows you to repay some of your debts while discharging the rest. It also allows you to keep all of your business assets and continue to run your business.

Learn More
If you are considering bankruptcy as an option for business debt, see Nolo's book, Bankruptcy for Small Business Owners. It can help you understand and strategically use bankruptcy for business debt.

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