Denver Bankruptcy Law Firm Wink & Wink Can Help You and Your Business Get Debt Relief
Small businesses are one of the things that make Denver a great city. They add local character, charm, and innovation and provide much-needed services to Colorado residents and visitors.
However, small businesses continue to face many challenges in the ever-changing business landscape. A business can be doing great one year but then run into unexpected challenges the next year that send debts soaring, while income falls. If the small business’s debt becomes too high, it may be time to consider filing for bankruptcy as a smart way to get debt settlement.
Many small business owners considering bankruptcy have some combination of personal debt and personally guaranteed business debt which they cannot repay. Their goal is often to wipe out the business debt in addition to their personal liability for those debts, while still keeping business assets. While achieving this can be difficult, personal bankruptcy can generally wipe out personal liability for business and personal debts, and is often the best option for business owners in financial distress.
Bankruptcy can be a complicated process. There are different types of bankruptcies, and each has its pros and cons. That’s why it’s crucial you speak with an experienced Denver bankruptcy attorney, such as Wink & Wink. They can explain your options and help you get the best possible outcome.
Owners of Sole Proprietorships Can Wipe Out Business Debt While Keeping Business Assets in Bankruptcy
Sole proprietorships are not business entities but are essentially part of the business owner. While these businesses do not give their owners limited liability (i.e., if someone sues the business, they are, in turn, suing the owner personally), they generally give their operators the most options in bankruptcy. This is because the business debts are generally wiped out along with personal debts when the operator files for personal bankruptcy. Additionally, under Colorado law, the owner can claim up to $30,000 worth of business assets as exempt and keep them through and after the bankruptcy.
Business Entities Are Often NOT Able to Wipe Out Business Debt in Bankruptcy, and the Business Assets May Be Lost in Bankruptcy
Most business entities, such as LLCs and corporations, offer their owners limited liability (i.e., someone suing the business usually cannot sue the owner personally). However, lenders typically require the owners to sign personally as a condition of extending credit to the entity. For these debts, liability is not limited to the business but instead extends to the owner.
In general, the business owner can wipe out personal liability for the guaranteed business debt by filing personal bankruptcy. However, that debt remains on the business because business entities cannot get debts wiped out in Chapter 7 or Chapter 13 bankruptcy. Business entities can pursue debt relief in Chapter 11 or Chapter 5 bankruptcy, but that is generally too costly a process for the typical small business.
Additionally, assets of the business entity are NOT exempt under Colorado law. This means that the business owner may lose the assets of the business entity in personal bankruptcy or be forced to pay to keep them (unlike with a sole proprietorship, where up to $30,000 in assets may be kept without having to pay). For these purposes, the value of corporate assets is their sale value minus corporate debt.
So what should the owner of a business entity do if they are in need of debt relief?
Chapter 13 Bankruptcy Can Wipe Out Personal Debt While Enabling the Business Owner to Keep the Business Entity
If the business owner is struggling primarily with personal debt, Chapter 13 bankruptcy can enable the owner to wipe out that personal debt while giving them time to pay the value of any assets held by the business entity. This is because Chapter 13 will put the business owner in a three- to five-year payment. This can be a great way to get personal debt settlement and potentially keep the business running.
Chapter 7 Bankruptcy Can Also Wipe Out Personal Debt, But the Business Entity May Need to be Restructured so the Owner Can Keep Them
Chapter 7 bankruptcy can enable the business owner to wipe out debt without any kind of payment plan. However, the value of the assets held by the business entity can be more problematic in Chapter 7. This is because assets owned by the business entity are not protected in personal bankruptcy. The business owner may be able to effectively protect the assets of the business entity by dissolving the business entity and operating as a sole proprietor prior to filing for bankruptcy.
Small Business Owners May Have to Close Down Business Entities with Significant Debt or Assets
If the business has secured debt, personal bankruptcy may not be enough to save the business because personal bankruptcy will not remove the lien on the business assets.
Similarly, if the assets of the business entity are worth more than the $30,000 tools-of-the-trade exemption in Colorado – which applies in both personal Chapter 7 and Chapter 13 bankruptcy – the business owner may have to give up some of the business assets either before or during bankruptcy.
Business owners should consult a debt settlement attorney, such as Colorado-based Wink & Wink, prior to dissolving or shutting down a business entity in anticipation of filing personal bankruptcy. You may be able to go into business as a sole proprietor, but be careful about moving assets from the business entity into your own name. Transactions involving business assets will be highly scrutinized for fraud. If you have corporate debt, you may not be able to simply liquidate the business assets and pay yourself the proceeds or distribute the assets to yourself.
For small business owners in financial distress, personal bankruptcy presents an opportunity to remove debt and gain a fresh start. However, personal bankruptcy cannot remove debt from a business entity, and you may not be able to keep assets of the entity in bankruptcy. While these facts may be hard to hear, facing them may be the only way to get out of a bad financial situation. Still, Wink & Wink has helped many business owners get out of debt while continuing to operate their business. Small business owners can benefit greatly from expert advice.
Before making any bankruptcy or debt relief decisions for your small business, speak with Denver bankruptcy law firm Wink & Wink. They’ll look over your case and try to get you the best result possible. Plus, the initial consultation is completely free. Call Wink & Wink at 303-410-1720 or contact us online to begin getting debt settlement help for your small business today.