As a Chapter 7 lawyer in Denver Colorado, I have received many calls from small business owners when they want to know:
1. Should I close my business if it is losing money?
2. Can the business creditors come after me?
3. Is the business worth saving?
4. How do I file a small business bankruptcy to protect myself and my family?
At Mile High Bankruptcy, almost all inquiries involve businesses that have closed, or should be shut down in an orderly manner. There is often much stress and pressure on the owners because of crushing debt. The owners are often very good individually at what they do, but business setbacks have caused debts that cannot be paid.
We always begin the analysis with protection of the owner. In most cases, we do not recommend filing a separate bankruptcy for the business entity as this adds added cost that is usually not necessary. We assist the owner with advice on how best to close the business, and handle all inquiries from creditors along the way.
In most cases, the use of a separate business entity to protect the owner does not work to avoid personal liability because the owner signed personal guarantees on the major debts like leases or bank loans. We file for the individual, but then include all business debts to be safe if a creditor want to go beyond the business and claim liability against the owner.
This system works very well for allowing a small business owner who has tried a business that is not working to get out from under the crushing debt of the business and start life again debt free doing what they know best.
For example, a person may be a first class carpenter, but created a construction company that was losing money. After filing a personal Chapter 7 bankruptcy, they can carry on their trade in a new, smaller format where they can earn a living without the crushing debt.
In most cases, business assets, like tools of the trade, are protected in chapter 7, along with most personal assets, so the business owner is able to move on and keep important property needed for the future.
There are other complicated and expensive reorganization options in bankruptcy that are not the subject of this blog. If appropriate, I review these options with owners, but Chapter 7 small business bankruptcy is by far the usual answer.
Closing a business and filing a bankruptcy is a big decision, and the first step is to have a conversation with an experienced professional bankruptcy lawyer to go through all the issues so you can make the best decision possible for you and your family.