Experienced Bankruptcy Representation for Sole Proprietors
Accomplished Los Angeles law firm serves entrepreneurs throughout California
You started your own business as a sole proprietorship because it made sense at the time. Maybe you wanted to be your own boss and you preferred to avoid the process and expense of forming a corporation or LLC. But if financial setbacks have put you deeply in debt and your best way out seems to be bankruptcy, you may rightly wonder how this court proceeding may affect your personal finances. If you find yourself in this situation, the Law Offices of Michael Jay Berger can help. I have decades of experience representing sole proprietors in bankruptcy cases. I provide the personal attention your case needs to achieve the best possible outcome.
Bankruptcy options for sole proprietors in California
When starting the business, you may have weighed the pros and cons of incorporation, which creates a wall of separation between your business and personal finances. In bankruptcy, that barrier protects personal assets like a home from liquidation to pay off business creditors. However, for many people, the advantages of a sole proprietorship — such as low startup costs, freedom from most legal compliance requirements and simplified taxes — outweigh the risk.
If you chose the sole proprietor’s path and now find yourself in overwhelming debt, you can still use bankruptcy to achieve a discharge of debts and a fresh start. Every form of bankruptcy allows for exemptions that can protect significant personal assets, such as your homestead, your vehicle and the tools of your trade.
Briefly, here are bankruptcy options you can consider as a sole proprietor:
- Chapter 7 — This type of personal bankruptcy is called liquidation because you may have to sell off assets to partially repay your creditors before the court discharges your remaining eligible debt. If you do not have many assets to protect, Chapter 7 could be your quickest and least expensive route to a fresh start.
- Chapter 13 — Although it’s a form of personal bankruptcy, Chapter 13 is similar to Chapter 11 business bankruptcy in that you agree to a repayment plan based on your monthly disposable income. You pay a set amount to the court-appointed trustee, who distributes the funds to your creditors. When you complete your plan in three to five years, the court discharges your remaining eligible debt.
- Subchapter V — This refers to a recently added section of Chapter 11 that makes it easier and less expensive for small businesses to reorganize, partially pay off debts and continue to operate. If you believe in the long-term prospects of your small business, Subchapter V is an option worth exploring.
Whichever option you choose, only business debts may be discharged and only non-business-related assets can be shielded. The bankruptcy court will consider whether any of your personal assets were used for business purposes, such as serving as collateral for business loans. If so, the assets may be subject to creditors’ claims. That’s why it’s important to consult a knowledgeable attorney who will take the time to get to know you and your situation and to determine your best option for emerging from debt.
Contact a knowledgeable California bankruptcy attorney to discuss your sole proprietorship
Located in downtown Beverly Hills, the Law Offices of Michael Jay Berger provides bankruptcy representation for sole proprietors, working to get them a debt discharge that fully protects their personal finances. To schedule a free consultation, call 310-271-6223 or contact me online today.