Could Bankruptcy Put Your Massachusetts Business in Danger?

No one relishes the idea of going through bankruptcy. Unfortunately, it’s sometimes the best possible solution for a difficult situation. While the process can be a complicated one, things can become far more complex for filers who also own a business entity. Many question whether they can continue running a business while undergoing bankruptcy in Massachusetts.

This is often a difficult question to answer, as there is no response that’s correct 100% of the time. In some cases, personal bankruptcy could very well place your business in danger – making it next to impossible to successfully operate. In other instances, you may be able to shield your company from the effects of insolvency.

Regardless of your situation, there are some important things you need to understand.

Can You Run a Business While Going Through Bankruptcy?

For those who have forgone the benefits of bankruptcy for fear of losing their business, there is a bit of good news. The simple fact is that entrepreneurs can continue operating a business while undergoing bankruptcy in Massachusetts. The complications encountered while trying to do so will vary by circumstance, but in all cases, it’s best to seek legal advice.

That’s because there’s a difference between being able to run a business and successfully running a business. When you file for bankruptcy, your assets may become the target of creditors – particularly if you’re a sole proprietor. Of course, even business owners who have created a formal business structure with the state could lose assets.

A bankruptcy attorney can explain your options – regardless of the situation – for keeping your business assets and company intact.

Business Structures Within Bankruptcy

Every entrepreneur understands that different business entities have different benefits. In many cases, these are major considerations when initially starting a company. However, this decision will also have a major effect on your ability to continue running a business while undergoing personal bankruptcy in Massachusetts.

Entrepreneurs with the most to be concerned about are those who run a sole proprietorship. The simplicity, tax advantages, and control offered by this business structure are unmatched. However, such a structure typically means that a person’s business and personal assets are intertwined. During personal bankruptcy, this can be detrimental.

If you formed your company as a corporation or LLC, the business is treated as a separate entity. This provides a better opportunity to continue running a business while undergoing personal bankruptcy in Massachusetts. Unfortunately, there are still ways that creditors can come for you — but it is possible for all types of business structures to fight back.

Running a Business in Chapter 7 Bankruptcy

If you need to file for bankruptcy, asset protection should be one of your top concerns. This is why many business owners choose not to file for Chapter 7 bankruptcy. This filing is a form of liquidation, and that means personal assets can be sold in order to pay creditors. This is especially troubling for sole proprietors – whose business assets are personal assets.

Unfortunately, this doesn’t mean that corporations and LLCs have nothing to worry about. These forms of business structure create separate legal entities. That means your business assets will not be viewed as personal assets. However, creditors could pursue the company itself.

Personal bankruptcy could also affect certain debts tied to the business — such as personal guarantees or loans taken out in the owner’s name for the business. The liquidation process is stressful, complex, and sometimes confusing. Your ability to maintain assets – and continue running your business through liquidation – will depend on how you navigate the process.

Running a Business in Chapter 13 Bankruptcy

Continued operations of a business is a delicate balance in Chapter 7 bankruptcy. It often takes intense preparation and dedicated legal maneuvering. For many entrepreneurs in this situation, Chapter 13 bankruptcy is a more straightforward solution. Rather than liquidating any assets, Chapter 13 filings reorganize debt so that it can be paid off over time.

Under reorganization plans, debtors are allowed to keep their assets as long as they continue making payments as ordered by the court. This includes both business and personal assets. It is simpler to continue running a business while undergoing bankruptcy in Massachusetts since none of your business assets will be in danger.

Of course, Chapter 7 does still offer some benefits. Fortunately, those who opt for such an approach may be able to exempt some of their business assets from liquidation.

Possible Exempt Assets in Bankruptcy

While Chapter 13 proceedings might seem like the best approach for those hoping to avoid losing their business assets, it’s important to realize that there are disadvantages to this approach. Lengthy repayment plans can put significant strain on a business. You also will see no immediate discharge of debts, and your company will face limits on growth since any new debt will require court approval.

Fortunately, certain assets may be exempt from liquidation under Chapter 7 filings. These include:

  • Tools of the trade exemption: Certain tools and equipment necessary for the filer’s trade or profession 
  • Motor vehicle exemption: Businesses that require the use of a vehicle may be able to exempt their automobile under bankruptcy rules 
  • Wildcard exemption: Bankruptcy filers can protect any property of their choosing with the wildcard exemption, but there are financial limits to what can be protected 
  • Retirement account exemptions: Any investments in retirement accounts are typically exempt under both federal and Massachusetts law

As with all legal issues in bankruptcy filings, your ability to take advantage of these exemptions will vary situationally. This is why it’s so important to understand your rights, the advantages and disadvantages of certain filings, and why seeking legal assistance is so important. It’s definitely not a stretch to say that the future of your business depends on it. 

Knowing When to Seek Out Help

Both Chapter 7 and Chapter 13 bankruptcy can offer debt relief to business owners. However, it should be clear by now that both processes can be incredibly complex. There are many nuances to the law, and the best approach for one entrepreneur may look very different than the best in another’s situation. Put simply, creditors are good at what they do.

This is why entire businesses will sometimes be targeted – and even when you think you’ve found the right solution, there’s no guarantee your assets will be safeguarded. For this reason and many others, seeking out legal help immediately is typically the right decision for those who want to continue operating a business while undergoing personal bankruptcy in Massachusetts.

At Benner Law, our dedicated legal professionals are here to assist you. Contact us at 774-228-7338 today for a free case evaluation.