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How will personal bankruptcy affect a sole proprietorship?

When times are tough and debt becomes overwhelming, New Jersey small business owners will likely consider their options. However, making informed decisions at this time may mean the difference between regained financial stability and losing everything. For this reason, gaining the relevant knowledge about personal bankruptcy and how it will affect one's business may be the appropriate first steps to take.

The type of business ownership and the chapter of bankruptcy that is filed will determine the impact on the business. Only limited liability corporations, partnerships and corporations may escape financial damage if one of the partners files for personal bankruptcy. However, if a business is a sole proprietorship, it will be affected by the owner's bankruptcy filing.

If a sole proprietor of a business files for Chapter 7 bankruptcy -- which is also called a liquidation bankruptcy -- the court-appointed trustee will arrange for the sale of all non-exempt assets at auction. Outstanding debts will be paid with the proceeds, and assets in the name of the business will also be sold. As a consequence, the business will likely have to close its doors. However, if the company is already in dire straits, with limited or no assets and not much potential for future viability, Chapter 7 may be ideal because the business debts may also be discharged in the bankruptcy.

An experienced New Jersey bankruptcy attorney may be the perfect source of information about personal bankruptcy and the impact it will have on a business. If a business owner wants to avoid risking a successful sole proprietorship, an attorney can explain other options, such as a Chapter 13 bankruptcy. This option allows the business owner to reorganize personal debts and pay them off over an extended period, which could free up funds for keeping the business running. Once the plan of action is established, a lawyer can provide guidance and support throughout and after the proceedings.

Source: FindLaw, "What Happens To My Business if I Go Bankrupt?", Le Trinh, Accessed on Oct. 28, 2016

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Goldman & Beslow, LLC is a Federal Debt Relief Agency by an Act of Congress. We have proudly assisted consumers seeking relief under the U.S. Bankruptcy Code for over 38 years.

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