Can You Continue Your Business After Filing for Bankruptcy?

Filing for bankruptcy always comes with a certain degree of risk, especially as a business owner. There is a chance that filing personal bankruptcy could make it difficult, if not downright impossible, for you to keep your business. However, this depends on the circumstances of your case, as well as the ownership structure of your business.

Here’s a closer look from an attorney specializing in business bankruptcy in Montgomery County, TX.

Sole proprietorship

If you have a sole proprietorship, your bankruptcy trustee may insist on your closing the business until the trustee is able to assess its value, whether or not it is exempt and how much any business assets could fetch if sold. This assessment process may take a couple months. While this may seem like an unreasonable expectation, it also does prevent you from adding on any additional debts or liabilities while the bankruptcy is in process.

Some companies that operate without assets (mostly those that provide a service) may be able to remain open during and after bankruptcy. However, companies that deal with products and large amounts of assets or companies that have significant accounts receivable that cannot be collected are more likely to be permanently shuttered.

Partnerships and multi-member LLCs

If you have a partnership or an LLC with more than one owner, your share of the company would be part of your bankruptcy estate. However, unless you are a majority owner, the trustee will not be able to interfere with the LLC or partnership, or seize any of its assets.

Keep in mind that you may have signed a buy-sell agreement or other type of contract before entering into ownership that prevents you from filing a bankruptcy while being an owner. This means you’d be required to terminate your interest in the company before you’d be able to file for bankruptcy. A violation of such a provision could open you up to a major lawsuit, so it’s best to abide by such contracts if they exist.

Corporations and single-member LLCs

The bankruptcy estate will also include any corporate shares. If you’re the sole (or majority) owner of a corporation or LLC, the bankruptcy trustee does have the authority to take over your shares or membership interest, and then vote to either liquidate or sell the business to be able to pay back creditors for what you owe.

In making this decision, the trustee considers the cost of dissolving and liquidating the business, how much the business assets are worth and whether any exempt assets exist. Liquidating doesn’t make much sense if the business owes as much or more than it owns, but if there are a reasonable number of valuable, nonexempt assets compared with a moderate amount of debt, dissolution and selling the assets could make sense.

For more information about how business bankruptcy in Montgomery County, TX may affect your ability to hold on to your business in the long run, we encourage you to contact James R. Jones, Attorney at Law with any questions or concerns.

Categorised in: Bankruptcy