How a small business is treated in Chapter 7
Just like your home, car or cash in your bank account is an asset, so too is your small business. You'll have to submit a profit and loss statement to the court for the past twelve months to see if there is any equity or cash value in the business. To assess this, you consider any business assets less business liabilities plus the value of any inventory.
If, for instance, you own a landscaping business, you would include your mowers and other equipment less any bills you owe and any debts attached to the equipment. Also, because you as the owner are likely the biggest asset of your business, it's not likely that the business can be sold for any significant profit (or any profit at all) and so it's usually not considered to be an asset that can be sold to pay off your debts.
Your personal exemptions can also be used to exempt your small business assets. You won't get any additional exemptions, but they can be applied as you like. Your business assets are treated just like your personal property. In North Carolina, here are the exemptions you can take as an individual bankruptcy filer:
- Homestead: real or personal property used as a residence $35,000
- Leftover homestead: $5,000 of unused homestead can be used to protect other assets
- Auto or truck: Up to $3,500 of motor vehicle value is protected
- Clothing, household goods, appliances and furniture: Up to $5,500 plus $1,000 per dependent maxing at $4,000 extra
- Professional books and tools: Up to $2,000
- Wildcard exemption: Up to $5,000 minus any homestead or burial exemption and $500 of any personal property
The option of closing your business in Chapter 7
If your business is not doing well and you're not planning on continuing to operate your business, you can close it down as part of the bankruptcy process. You must dissolve your corporation formally and then you should be able to eliminate your business debts along with your unsecured personal debts. This can get you a completely fresh start unencumbered by both business and personal debts you can't afford to pay. Plus, you can always start a new business again later if you decide to. There's no rule against this.
If you own a small business that's drowning in debt and you also have significant personal debts you can't pay, you may want to see how filing bankruptcy can improve your circumstances. Contact the law offices of John T Orcutt for a free consultation at one of our convenient North Carolina locations to discuss your debt circumstances and find out if Chapter 7 is a fit for you.