Does Filing a Business Bankruptcy Mean I Lose My Personal Property?
On average, about 37,000 small businesses file for bankruptcy each year. If you are one of the many small business owners who need to file for bankruptcy, you might be wondering if you’ll have to give up your personal belongings. Keep reading to find out how you can file for bankruptcy and protect your private property.
Understanding the Different Types of Bankruptcy
To figure out if you will need to use any personal property to pay for business debts, it is helpful to consider what type of bankruptcy works for your business. The different types of bankruptcy you may want to consider include:
- Chapter 7. Also called liquidation, Chapter 7 is essentially a type of bankruptcy that lets a person close down a business. During the process, any assets are liquidated and used to pay for the business’s debts. This may include liquidating personal assets to pay business debts. Any debt that is not covered by selling all assets can be forgiven.
- Chapter 11. This type of bankruptcy is essentially a type of business reorganization. Keep in mind that your business debts are not forgiven in this type of filing. The company stays in operation and pays back debts over several years, so your assets are not used to pay debts.
- Chapter 13: Not all businesses can file for this type of bankruptcy. It is only applicable to companies that have a sole proprietorship because it is technically for personal bankruptcy. You just create a plan to pay off the debt over three to five years with your income instead of selling everything to pay debts. Therefore, none of your property will be taken.
Ways Business Owners May Lose Their Private Belongings
As you can see, small business owners usually do not lose their own personal property when their companies file for bankruptcy. However, there are a few things that may happen to cause an owner to lose his or her house, car and other pricey belongings.

If you never incorporated the business and, instead, ran it as a sole proprietorship, you are personally liable for its debts. This means that if you file for Chapter 7 bankruptcy, your personal property may be taken.
If a creditor believes you fraudulently created a corporation to shield your assets from being reclaimed, they can file a lawsuit to seize your personal assets. Usually, a creditor can only do this if you did something unethical.
If you signed a piece of personal property, like a house, over as collateral for a business loan you took out, a business bankruptcy will not shield the property. It is now involved in the business and can, therefore, be a part of the debt owed to a creditor.
In Chapter 13 bankruptcy, both personal and business debts are considered. However, this type of bankruptcy just requires a payment plan, not complete liquidation of assets, so you usually will not automatically lose your home or vehicles.
Protecting Personal Property When Your Business Files Bankruptcy
If you want to make sure your personal belongings are not taken for a business debt, it is important to pick the right type of bankruptcy. Usually, Chapter 11 and 13 are better at ensuring you keep personal assets if your small business is involved with your private life. However, if your business is an LLC or corporation, then you can typically file for Chapter 7 without losing your private belongings.
If you own a small business and are considering filing for bankruptcy, it is a good idea to have a bankruptcy lawyer in NJ on your side who is familiar with all the nuances of bankruptcy laws. U.S. bankruptcy laws are very complex, and filing the wrong paperwork can mean losing your property. At Neuner & Ventura, we work hard to protect the interests of our Marlton clients. Give us a call at (856) 596-2828 or email us through our online form to set up a consultation today.