Can You File Bankruptcy on Business Debt Only?

This is a question that we hear often. A man or woman will call in with what they think is a simple question. He or she will share that they have been operating a business and want to know if they can bankrupt on just the business debt and keep their personal debt out of the bankruptcy. In this situation, as in many, the answer is not a simple one.

The first step will be to determine what type business the individual has been operating and in what legal capacity. In many cases, the individual will have been acting as what the law calls a sole proprietor. For example, a guy runs a service business such as laying brick or mowing lawns. He calls his business "ABC Brick Laying" but has never created any kind of business entity such as a corporation. There may be credit cards issued to Joe Smith DBA (doing business as) ABC Brick Laying and Joe wants to know if he can just bankrupt on these debts. The problem is that there is no separate business. Joe has simply been using a business name. In this type situation, the debt belongs to Joe. Not to any business. If the debt isn't paid, the credit card companies will sue Joe - not the business. To get rid of the debt, Joe will need to file a personal bankruptcy. If he files a personal bankruptcy, he will be required to list all of his bills. He can't pick and choose. This is not always a problem as Joe may choose to agree to keep paying on certain debts - like his house payment or car loan - after the bankruptcy. But all of Joe's property may become part of the bankruptcy estate. Joe will need an experienced bankruptcy attorney to do a detailed analysis of his situation.

In other situations, the caller will have taken steps to incorporate her business. Sally may be selling cars and have incorporated her business as "Sally's Cars, Inc.". If all of her business debt has been incurred in the name of Sally's Cars, Inc. only, she may be able to avoid personal bankruptcy because she is not liable on the debt personally. Unfortunately, in many of these type situations we will find that a creditor will have required Sally to personally guarantee the debt of her corporation. The bank that helps her purchase the cars that she intends to sell, for instance, will make her agree to pay on her own if the corporation fails to do so. If this is the case, Sally may have to consider personal bankruptcy if her corporation can't pay the bank. Again, Sally should consult with an experienced bankruptcy attorney to help analyze her situation.

 At Bond & Botes, our affiliated offices offer free initial consultations. If you have questions about your business debt, feel free to call one of our conveniently located offices to set up a private consultation with one of our experienced attorneys. We will analyze your situation and help you to make the best decisions possible.

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