Legal Question in Bankruptcy in Pennsylvania

Re: bankruptcy for my business

Short answer -- If you are asking whether you can file bankruptcy limited to the business the answer is no.

Since you state the business is not incorporated all the debts associated with it are your personal debts. Therefore you would have to file a personal bankruptcy in order to obtain relief. One possible option might be to write all of the creditors of the business and inform them that you have closed. Wait to see their response. Those creditors who aggressively pursue could be offered a compromise (i.e. .10/$). It would require some significant effort on your part and you would necessarily continue to deal with the business' failure on an emotional level. The bottom line is; if and when one of these creditor's filed a lawsuit against you for collection you would still have the ability to file bankruptcy then. If you need assistance and you reside in Philadelphia or Pittsburgh and the surrounding communities please do not hesitate to contact me. ph. (800) 303-0720

Re: bankruptcy for my business

As you may know, there are generally two types of bankruptcies for consumers, Chapter 7 and 13. The former is generally for those who simply require the elimination of unsecured debt such as credit cards. The latter is generally for those who have fallen behind in secured debt such as a mortgage. Chapter 13 allows you to repay any arrears over five years.

A bankruptcy protects just about all consumer assets. There is a $16,000.00 minimum homestead exemption in your principal residence per person. The contents of your home, if any one item is not worth a great deal, are exempt up to at least $8,000.00. There are many other exemptions, as well. Vehicles are exempt to a minimum amount of $2,400.00 and, if you do not own real estate, there is what is commonly known as the "wildcard" exemption. You may use up to one-half of the homestead exemption for any asset you want to protect.

An exemption is a dollar amount assigned to an asset so that, if a Trustee ( the person charged with liquidating assets) were to attempt to sell such an asset, he would have to pay the exemption amount to you. Since the stated exemptions usually cover the value of the assets, most consumer cases are determined to be "no asset". Thus, you simply obtain a discharge of your debt.

Unincorporated businesses can file a Chapter 7,11 or 13. However, only the Trustee in a Chapter 7 is authorized to operate a debtor's business. Therefore, if you have a store front, your business would be closed. The only alternative is to incorporate and the business could then remain open in the corporate name. Issues then arise as to who owns the assets of the business and whether or not they are exempted as discussed above.

Chapter 13 allows you to operate the business. However, it also requires you to repay some of your debt via a 3 to 5 year plan. If you have the disposable income to do that, there is no need for you to incorporate.

Chapter 11 is for those business debtors who do not qualify for a 13 because their secured debt is in excess of $800,000.00 or their unsecured debt is in excess of $280,000.00. This type of bankruptcy is very expensive requiring at least $10,000.00 in attorney's fees and many other expenses. For relatively small businesses, a Chapter 13 would be recommended.

You have many issues which really should be reviewed by experienced bankruptcy counsel. A detailed discussion will help the attorney advise you on the best course and help you understand your options.

I trust this has been helpful, but feel free to call or e-mail with further questions.