If you, as the owner of a business, are facing the possibility of bankruptcy, you may wonder what will happen to your Iowa company if you file for Chapter 7. A Chapter 7 bankruptcy allows you to liquidate some of your debts, but you may fear losing your business in the process. Actually, filing for Chapter 7 will have different results depending on the type of business you own, as well as whether you file personally or as a business.
There is an important distinction between a sole proprietorship and other business entities like LLCs, partnerships and corporations. As Chron.com points out, a sole proprietorship is indistinct from its owner. If a sole proprietorship runs into legal trouble, the owner can be sued personally. However, other business structures are legally separate from their owners. These different types of businesses offer their owners protection from many liabilities.
However, when it comes to filing for Chapter 7 bankruptcy, there is actually an important advantage to owning a sole proprietorship. Businesses that are legally separate from their owners must file for Chapter 7 as businesses. But in doing so, a Chapter 7 bankruptcy will cause the company to be shut down and its assets liquated.
On the other hand, if you own a sole proprietorship, you can file for Chapter 7 and hold on to your business. The assets that belong to a sole proprietorship are also the property of the owner. Since the business is not distinct from the owner, the business cannot be sold off. It is possible for the owner to continue business operations, if not during the bankruptcy, then afterward, once all debts have been settled.
During your bankruptcy period, you can see about claiming a bankruptcy exception on whatever tools you use to carry out your business. Your bankruptcy trustee may decide to let you retain business equipment as long as it does not exceed a specific value. This can help you retain your source of income and give you a better financial start when you exit bankruptcy.
Still, if you should own a company that is not a sole proprietorship and feel you have no choice but to file Chapter 7, there is still the possibility that you can rescue your business from being sold off. Not all businesses put up for liquidation actually get sold. Findlaw points out that if your trustee cannot sell your business, you may be able to buy it back yourself.