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Does business bankruptcy threaten your personal assets?

On Behalf of | Jun 6, 2024 | Bankruptcy

When you file a personal bankruptcy, some of your assets are going to be exempt. But if you use Chapter 7, then you have to liquidate your non-exempt assets. For example, your main vehicle may be exempt because it is a necessary means of transportation, but a motorcycle or a sports car that you bought just to be a fun summer toy may need to be liquidated.

In some cases, though, business owners have to determine if they’re going to file business bankruptcy. They took out loans, but the company just hasn’t panned out. They may be worried that they’re going to lose personal assets, like their investments, retirement savings, bank accounts, a family home and the like. Would these be at risk for a business owner who filed for bankruptcy? 

Considering the business structure

In some cases, yes, business bankruptcy could affect the business owner. For instance, maybe they’re just running the business on the side and they never officially established it. They took those loans out in their own name. Even though they’re using them for business purposes, they are still personally liable.

On the other hand, perhaps they set their business up as a limited liability company (LLC). They then use the business entity itself to take out the loans. In that case, if the business goes under, the owner wouldn’t be personally liable. They would just have to liquidate the business’s assets, but they could still keep their family home, their savings and other personal assets. 

Bankruptcy can be very complicated, especially for business owners and other professionals. If you find yourself in this position, you need to be well aware of the legal options at your disposal.