Similar to a partnership, a corporation can also file Chapter 7, but again, it won’t receive a discharge. The benefit of a business Chapter 7 is the simple and orderly liquidation it provides by placing the burden of selling assets and paying creditors on the trustee instead of the owners.
Does personal bankruptcy affect my corporation?
Owners of corporations can generally file a personal bankruptcy without affecting the corporation. The shareholder and the corporation are two separate entities. If you file a personal bankruptcy, you might need to resign as a director of your corporation, but that doesn’t limit you from continuing to own the shares.
How may a corporate bankruptcy filing affect the ownership of a corporation?
A Chapter 7 business bankruptcy does allow for the orderly liquidation of business assets, and is overseen by the bankruptcy trustee and the bankruptcy court. The corporate or LLC owner is not affected by those actions if there are no personal guarantees or they have themselves already filed for bankruptcy.
Can personal creditors go after a corporation?
When you form a corporation or an LLC it becomes a separate legal entity apart from its owners. If the corporation or LLC cannot pay its debts, creditors can normally only go after the assets owned by the company and not the personal assets of the owners.
Does bankruptcy clear personal guarantees?
It’s relatively common for a business owner to file individual bankruptcy to get rid of a personal guarantee—and most personal guarantees will qualify for discharge. If it’s a nondischargeable debt, however, bankruptcy won’t help. You’ll have to file individual bankruptcy to get rid of the obligation.
Are shareholders personally liable for the debts of a corporation?
Generally, shareholders are not personally liable for the debts of the corporation. Creditors can only collect on their debts by going after the assets of the corporation. This is called piercing the corporate veil.
