Virginia business owners who are faced with unmanageable debt likely have many areas of concern. One question that they will need answered is whether or not they can keep operations going after the bankruptcy has been filed. The answer to that question largely depends on how the business is organized.
Businesses that operate as a sole proprietorship may in some cases continue to operate after the bankruptcy has been filed. However, partnerships, LLCs and corporations will cease to exist. This is because they are separate entities from the owner that have run into financial trouble. The business assets will be liquidated by a trustee per the bankruptcy code. When a sole proprietor files for personal bankruptcy, the assets of the company and the assets of the company are considered one and the same.
If a business wants to remain open after filing for bankruptcy, it may be best to file for Chapter 11 bankruptcy. Chapter 11 bankruptcy is a reorganization process for businesses that is overseen by a trustee. During this time, contracts and other obligations may be forgiven or modified to help the company remain competitive.
Sole proprietors who wish to file for Chapter 7 liquidation bankruptcy may be able to keep their businesses afterward. There are exemptions available that may allow the owner to retain certain assets that are used in the business from being liquidated, although as the debts that are discharged will likely include those incurred in the course of doing business, it may in some cases be difficult to obtain future trade credit from those vendors. A bankruptcy attorney can explain the eligibility and other requirements associated with Chapter 7.
Source: Houston Chronicle, “Can I Keep My Business If I File for Chapter 7 Bankruptcy?”, August Jackson, accessed on Feb. 8, 2015