Our Support for Your Financial Challenges Goes Beyond Words – We Take Action
As a small business owner or independent contractor, it’s always nice to hear kind words of support. In this economy, however, those kind words aren’t always enough. The real challenges of small businesses today deserve more than kind words. You deserve action. Someone has to be there to help guide you through the tough times and encourage you as you find a new road to success.
At Wink & Wink, our business bankruptcy lawyers are on your side – not with words, but with solutions. We can help you find debt relief and move forward. This begins with our willingness to listen, understand, and present a plan.
We’re here for you during our free consultations, so you can express your concerns and frustrations, and get down to the business of finding a lasting solution for your business debt. Whether you’re seeking Subchapter 5, Chapter 11 bankruptcy, Chapter 7 bankruptcy, or any of our signature strategies, we’re here to help.
The Facts on How Small Business Bankruptcy Can Benefit You
First, it is important to determine whether your business is a sole proprietorship or a business entity. Debt relief through Subchapter 7, Chapter 11 bankruptcy, Chapter 7 bankruptcy, and other solutions are dependent on how your business is structured.
Sole proprietorships are defined by the fact that there is no difference between the person and the business. If you haven’t set up a legal entity for your business such as a corporation or LLC, then you are a sole proprietor. In this case, there is no difference between you and your business. Everything your business owns is a personal asset and every business debt is owed by you personally. It is important to know that a sole proprietor can have a DBA (doing business as). If you register a DBA with the Secretary of State where you reside, you can have a business name even though you are a sole proprietor. In that case, your business is still you, but it has a name that will enable you to cash checks payable to a business name with an account that has your name DBA the business name (ex. John Smith DBA XYZ Painting).
Business entities are different. To do business through a legal entity, such as an LLC or corporation, you must create the entity. This is typically done by registering the business entity with the Secretary of State. Typically, your legal entity is registered in the state where you reside, but this isn’t necessarily the case. When you create a legal entity, you typically assign certain business assets to it. This may be cash put into the entity’s bank account or physical assets such as equipment or inventory. Your personal assets are typically not contributed to your LLC or corporation, so that they are separate from your business assets.
A primary benefit of operating your business through a legal entity is that it protects your personal assets from business creditors. For example, if someone gets hurt due to the negligence of your business, that individual’s recourse is typically limited to the business and its assets. The injured person could very likely not be able to sue you personally for damages, so your home and other personal assets are safe. To help ensure this protection, it is important that you keep your personal finances separate from the business finances. You should pay business expenses from the business account and (while you can pay yourself from the business) personal expenses from a personal bank account.
Debt Solutions for Sole Proprietorships:
- Debts from sole proprietorships and personal debt are the same. Because of this, debt relief for a sole proprietor is personal debt relief. It can include personal bankruptcy in Chapter 7 or Chapter 13. The law typically draws a line between Chapter 7 and Chapter 13 based on your household income. If your household income (including all sources of income, your spouse’s income, side job, etc.) is below the median income in the state for your household size, the assumption is that you cannot afford to repay your creditors based on your income, and you are eligible for Chapter 7 bankruptcy. Chapter 7 bankruptcy is property based bankruptcy in which you keep property that is protected under the law and property that is not protected is taken from you and liquidated by the Trustee with the proceeds distributed to your creditors.
- If your income is over the median, then you typically must itemize your expenses (certain expenses are based on IRS standards, which are likely less than you actually spent) to determine your disposable income. If you have positive disposable income, you are likely not eligible for Chapter 7 bankruptcy. In this case, your only bankruptcy option may be Chapter 13 bankruptcy in which you will pay your disposable income over a 5-year payment plan. Depending on how much debt you have compared to your disposable income times 60 months, you may pay only a fraction of your total debt with the balance discharged at the end of your bankruptcy. You won’t have to pay more than your total debt.
- Certain business debtors may be able to file Chapter 7 despite having income greater than the median for their household size if the majority of their total debt is non-consumer debt. Non-consumer debt includes business debt and taxes, including income tax. Consumer debt will include your mortgage, car loans, and other personal debt.
- Our clients are especially relieved to hear that you can potentially continue your business after bankruptcy, as you will be able to exempt up to $60,000 of business assets.
Debt Solutions for LLCs and Corporations:
- If you are operating through a LLC or corporation, it is possible that your business could file bankruptcy. However, bankruptcy is very limited for small businesses. This is because an LLC or corporation is not eligible for a bankruptcy discharge the way an individual is. Bankruptcy for a business entity will be either liquidating the business assets for creditors in Chapter 7 or restructuring debt in a Chapter 11 or Subchapter 5.
Chapter 7 is typically not necessary to shut down your business, and it is absolutely not a good option if you plan to keep operating the business. Chapter 11 or Subchapter 5 can be effective at restructuring debt into a 5-year payment plan while the business continues to operate, but this is very costly. Attorney fees in Chapter 11 or Subchapter 5 typically total in the tens of thousands of dollars or more. Additionally, putting your LLC or corporation into bankruptcy does not remove your personal liability for business debt. Many small business owners are personally liable for business debt because many creditors such as banks and landlords will require the business owner to personally guarantee the debt. When this happens, your corporate creditors can sue you personally for unpaid debt even if your LLC or corporation files bankruptcy. In this case, you may consider filing personal bankruptcy in Chapter 7 or Chapter 13 as discussed above to get out of the business debt.
- It can be possible to continue operating your business even if you file personal bankruptcy depending on the type of bankruptcy you file and the value of your business. However, your personal bankruptcy does not get your LLC or corporation out of its obligations. Because of this, you may wish to dissolve the business and operate as a sole proprietor prior to filing bankruptcy. This can effectively shut the door on your business creditors while allowing you to keep operating your business. Restructuring your business to operate it as a sole proprietorship before filing will allow you to protect up to $60,000 in business assets to keep your business going. This is the only way to protect these assets because you cannot protect assets that are owned by your business entity, the corporation, or LLC.
In either case, our business bankruptcy lawyers will find ways to provide real debt relief and help you move forward with your business. While bankruptcy may seem like something to fear, it is actually an affordable, fast, and efficient way to get out of debt while potentially keeping your business afloat in the long run. If you are particularly worried about what your financial situation will look like after bankruptcy, you can earn a 700 credit score and secure a mortgage loan within two years. Depending on your credit and debt to income ratio, bankruptcy can actually be the fastest way to rehabilitate your credit.
Do You Have Questions about SBA EIDL Loans and Small Business Bankruptcy?
Now that the Small Business Association Economic Injury and Disaster Loans are coming due, many small businesses are trying to understand how to pay back these EIDL loans, especially when their business is already struggling. Three years later, it’s still hard to grasp how much things have changed for small businesses in a short amount of time, and the feelings that come with these changes make it hard to know what to do.
First, know that during times of financial difficulty, it is normal to feel some level of negative emotion about these circumstances. Often when we experience these feelings, we need to figure out who is to blame. This is also normal. However, as with anything in our lives that’s challenging, there has to be a way to move forward, so we are not stuck in these feelings.
Fortunately, Wink & Wink provides a space for your frustrations and a plan of action. Wink & Wink’s team of business bankruptcy lawyers will hear you out as you explain your situation, then offer a solution for your EIDL loan, including potentially discharging this loan through Chapter 7 bankruptcy. Our recent article on this subject can provide further guidance in advance of a free consultation.
Partner with Small Business Champion Wink & Wink for Business Bankruptcy
Owning a small business or operating as a sole proprietorship brings about significant challenges. Sometimes you feel like many others are to blame for the difficulties you’ve experienced. This is entirely understandable. It’s simply not easy out there.
It’s also not easy to approach a business bankruptcy lawyer when you’re uncertain about the outcome. However, there’s a reason why we’re the leading team for Chapter 11 bankruptcy, Chapter 7 bankruptcy, and all debt relief services for small businesses. We offer real strategies and real solutions to benefit you, moving past blame and uncertainty to confidence and hope for a better future.