Commercial bankruptcy is usually filed as Chapter 11, which contains many situations that will determine the vulnerability of your personal assets in commercial bankruptcy cases. Rely on a full-service business consultant to determine which assets are at risk and why.
Depending on your business structure, the risk of your personal assets can vary greatly. If you are a sole proprietor or a partnership, the likelihood that the creditor will recover your personal assets will be greater than the likelihood that you are an LLC or a company. However, it is far from being so simple. A limited liability company, while offering greater protection than a sole proprietorship, does not protect all personal assets and companies. In addition, small business owners often need to sign personal guarantees regardless of the business structure:
• Provide credit lines to banks
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• Rent commercial real estate to the landlord
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• For material suppliers
These personal guarantees make all personal assets considered collateral and subject to liens and liquidation.
Business owners may have other areas that are subject to personal responsibilities, such as payroll and certain taxes, and commercial banking has no impact on this responsibility. The importance of consulting qualified bankruptcy attorneys and commercial accountants before submitting an application can accurately determine which personal asset protection options are available to small business owners and large companies. You may be affected by the personal impact of the application, but these professionals as consultants will have a significant impact on the degree of adversity.
The way in which bankruptcy affects individual assets is largely established during the formation of the business and how individual liability is predetermined. Whether the enterprise is treated as a single entity or a separate entity in the formation process determines the individual risk factors. Unfortunately, many people start businesses without considering the risks that potential bankruptcy may pose. No one plans to go bankrupt, but more than half of small businesses fail in the first year.
Even a limited liability company or company cannot be excused from filing a personal lawsuit. If it is not possible to reorganize under Chapter 11, the automatic stay clause of the Federal Bankruptcy Law can be extended to foreclosure and individual proceedings.
If you borrow money as an individual and inject it into your business at the time of acceptance and later convert the business into a limited liability company or company, the funds can still be used as a personal liability guarantee. A common misconception is that once a sole proprietor believes that all individual obligations are purified in the company's organization. In fact, this is not the case.
Before starting any business, you should consult a full-service commercial legal counsel because each business is at risk. Experienced professionals can help reduce the risk of sunsets and help protect personal responsibility for the future.
Orignal From: Will I lose my personal assets in business bankruptcy?
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