When you’ve exhausted all other options, the best path to debt relief may be Chapter 7 bankruptcy. However, for individuals who own small businesses, this solution can be unclear—where is the line drawn between personal and commercial assets? If you’re wondering how your company would fare, take advantage of this brief guide.

What Is Chapter 7 Bankruptcy?

When you file for this debt relief option, you’ll have unsecured debts erased. In return, you may have to surrender property, such as your home or vehicle, so it can be auctioned off and used to pay creditors. However, the courts won’t leave you stranded—they’ll allow some property to remain exempt, so you still have the means to survive and eventually start rebuilding your credit. If you want to retain your small business, it must be considered one of these exempt assets.

How Will It Affect Your Small Business?

If your small business is listed as a sole proprietorship, you likely don’t have employees—you may operate alone as a tutor, dog sitter, or shoe repair expert. Since you’re the owner and operator and you own all of the equipment used or products sold, your business assets are lumped in with personal ones. Therefore, they won’t be excluded from the Chapter 7 bankruptcy process.

If you run a limited liability company or a corporation, the small business will be considered different from your personal estate. While all the assets owned by the company may be exempt, your own shares or stock in the company can be auctioned off by the bankruptcy trustee. 

If you’re trying to figure out whether Chapter 7 bankruptcy is right for you, find guidance from Donald L. Spafford, Jr., Attorney at Law. This Honolulu, HI, attorney has over three decades of experience helping clients file, whether they choose Chapter 7, 11, or 13. The firm can also help with other business law matters, such as partnerships, contracts, and debt consolidation. To learn more about their skills, visit the website, or call (808) 532-6300 to schedule a free debt relief consultation.