Gerri Detweiler
Business Financing eXpert
Save Your Business in Bankruptcy
August 11th, 2008
My Xbanker colleague Garrett Sutton has written extensively on the value of incorporating a small business, and here’s another reason to do so:
Incorporating can literally save your business.
I doubt many sole proprietors realize that filing for personal bankruptcy (due to medical debts, divorce or many of the other reasons people file) could mean the end of their business.
I didn’t.
But in a recent post on the Bankruptcy Law Network, California bankruptcy attorney Cathy Moran describes a recent case in which a couple who owned a business as a sole proprietorship were in danger of losing it – even though it was doing just fine – because they had to file for personal bankruptcy due to real estate investment debts.
She points out that:
…(the) business was a sole proprietorship. If we filed Chapter 7 now, Chapter 7 trustee’s first reaction to a going business is to shut it down. The trustee is concerned about his liability for regular business debts the operation may incur and the possibility that a customer may be hurt on the premises. The trustee wants to preserve the status quo by shutting the doors, even if there is nothing in the business that he can sell for the benefit of creditors.”
In this case, she was able to incorporate the business to save it.
But as another California bankruptcy attorney Douglas Jacobs points out in another post, waiting until you are contemplating bankruptcy to incorporate your business is risky business. It can be considered a “fraudulent conveyance” and can backfire.
If you haven’t been convinced yet that you need to incorporate, what else can I do to convince you that you need to check it out? It may literally save your business.
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