Can I file Personal Bankruptcy and Include my Florida Business?
This question comes up many times because it seems as though it would be much cheaper and easier to file a personal bankruptcy and include the business (assuming the business is struggling) rather than having to file two separate cases. Unfortunately, that is not always the case. When someone "incorporates" and creates/registers a business entity with the secretary of state, that in and of itself creates a separate "entity." Although the debtor may be the only member/shareholder of the company, the debtor and the business are considered two separate entities. Therefore, a business must file separately from the owner for bankruptcy relief.
Business bankruptcies do not result in a "discharge" per se, but they can, in some instances, alleviate the owner from personal liability. Business bankruptcies are usually reserved for struggling businesses who cannot pay their state taxes and employee wages. In a chapter 7 business bankruptcy, the bankruptcy Trustee liquidates the business assets and pays off creditors. Creditors are classified and categorized by their "priority." IRS and state entities are high priority along with employee wages. Therefore, when assets are liquidated, these parties are paid out first and the idea is that their claims will be satisfied and the owner will no longer be personally responsible for those debts.
Unsecured creditors like most vendors, suppliers and investors receive a pro rata share of whatever is left of the liquidated business assets. If after all creditors and bankruptcies trustee are paid off, and there is still leftover equity of the business, the business owners may be able to split the difference. However, this rarely happens. Many times creditor vendors require the owner to personally guarantee business debt. They make this requirement in the event the business does struggle financially and there is nothing to attach or collect on for the business, they still have recourse against the individual owner in an individual capacity. In most instances, this will hold the business and the individual responsible for the same debt. It works much like a co-signor on a vehicle loan or credit card. One borrower may not be approved for the amount of debt wanting to be taken out, however, with a co-signor obligating his or her self to the debt, the lender feels it is not taking as big of risk in lending the money. Now, the lender has two individuals it cal hold responsible in the event of a default.
One pitfall that debtors should avoid when thinking about filing business or personal bankruptcy is to avoid transferring assets shortly before filing. That is a very quick way to have your case dismissed and you will not receive a discharge. Now, you are out time, money and effort. The best thing to do is to avoid transferring business or personal assets if you plan to file bankruptcy. The bankruptcy Trustee has the right to go in and void those transactions if they happened within certain time frames provided in the bankruptcy code.
If you have questions about Florida Divorces or Bankruptcy Law contact a Florida Attorney
Greg Gilbert
Keith Maynard
