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What Happens To My Business if I Go Bankrupt?

By Christopher Coble, Esq. on May 27, 2015 | Last updated on March 21, 2019

When the debts start piling up, you may have to consider bankruptcy.

Bankruptcy may sound appealing. You get the creditors off your back and your debts discharged. Sure, it destroys your credit, but that can be rebuilt. However, what about your business?

What can happen to your business if you file for bankruptcy?

Sole Proprietorships

In a sole proprietorship, there is no boundary separating you from your business. If your business has debt, you are personally liable for those debts. If you personally have debts, creditors could go after your business assets to satisfy those debts

Chapter 7

Chapter 7 bankruptcy is often called liquidation. Under chapter 7 bankruptcy, the trustee will sell all assets, except exempt assets, to cover as much of your debts as possible. Since most business assets are non-exempt, your business assets will likely be sold too. So, a chapter 7 bankruptcy could potentially shut down your business. However, chapter 7 bankruptcy would be a good option if your business has little to no assets and no viable future.

While it may be disheartening to have to shut down your business due to chapter 7 bankruptcy, you'll also be free from most business debts, because they may be discharged.

Chapter 13

If you really want to hold on to your business and keep it open, you may consider a chapter 13 bankruptcy. Under Chapter 13, you make a promise to the bankruptcy court to repay debts according to a repayment plan. Depending on the size of your business debt, chapter 13 bankruptcy may last about three to five years.

Partnerships and Limited Liability Corporations

If your partnership files for bankruptcy, you can be liable for your portion of the partnership's debt. However, if you file for personal bankruptcy, your partnership business is unlikely to be affected. A bankruptcy trustee may take the profits disbursed to you, but cannot dissolve the partnership to sell the business' assets.


A corporation is treated similarly to a partnership or LLC in a bankruptcy. Unless you are the sole or majority owner, the bankruptcy trustee cannot vote to sell or liquidate the business to cover your debts.

If you are considering bankruptcy but want to protect your business, consult with an experienced bankruptcy attorney for help.

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