Question about personal bankruptcy and small business ramifications.

[SunnyD]

Asking questions on behalf of a business here, I'm only peripherally involved in any way.

Long story short - small business (LLC) is currently operational, but the sole owner just filed Chapter 7. I'm trying to find out how likely the business will be impacted, and if at all how it will be impacted.

I am aware that corporations enjoy some autonomy from the individual, but I'm also aware that bankruptcy laws have been "evolving" especially over the last few years. Given that it's a private business with essentially one controlling owner there is obviously some concern that the bankruptcy will take into account the ownership in the business. I'm fairly certain that the owner never even considered any ramifications and probably hasn't consulted any attorneys about that situation (yet).

Thanks for any input in advance.

 

[SearchMaster]

I am not a lawyer or accountant...

I'm pretty sure the owner's creditors cannot come after his business assets unless he used them as guarantees on loans. But his personal BK may make it harder for his business to get credit in the future for expansion, asset acquisition, etc. This only holds true if you're sure the business is an LLC and not a sole proprietorship.

[edit]Turns out I'm wrong - http://bankruptcy-law.freeadvice.co..._bankruptcy/bankruptcy-ownership-interest.htm - the owner's interest in the business IS an attachable asset, in theory, so it IS possible for the BK court to force a sale of the business if it has value in the open market (not necessarily true if the owner's skills and such are necessary for the business to exist).[/edit]

 

[SunnyD]

I am not a lawyer or accountant...

I'm pretty sure the owner's creditors cannot come after his business assets unless he used them as guarantees on loans. But his personal BK may make it harder for his business to get credit in the future for expansion, asset acquisition, etc. This only holds true if you're sure the business is an LLC and not a sole proprietorship.

[edit]Turns out I'm wrong - http://bankruptcy-law.freeadvice.co..._bankruptcy/bankruptcy-ownership-interest.htm - the owner's interest in the business IS an attachable asset, in theory, so it IS possible for the BK court to force a sale of the business if it has value in the open market (not necessarily true if the owner's skills and such are necessary for the business to exist).[/edit]

Yeah, this is the part that leaves me wondering what the case is going to be here. I'm fairly certain the business is a LLC, so there's that aspect, but like you found out I'm also aware (and pointed out) that with the change in climate regarding bankruptcy and corporations there has been a push to make a tenable attachment between individuals and corporations in some cases.

At the very least what I've seen mentioned so far is that the owner will lose any interest in the company, but does that mean the company's decisions move to the trustee? And at worst case, like you pointed out, the business could potentially be liquidated as directed by the trustee. I highly doubt that the latter would happen given the current situation the business itself is in given its creditors would need to be paid first, and given it's essentially a service business there's not a heck of a lot in terms of assets to liquidate anyway.

I guess my real question is whether all further business decisions will be made via the court/trustee or if it's just business as usual.

(I know, talk to an attorney...)