Who can be personally liable in a Chapter 11 bankruptcy?

Sometimes, factors outside of a business owner’s control cause the business to fall into hard financial times. A struggling economy, an increase in competition or a lack of consumer interest could all lead a once thriving business to find it cannot meet its financial obligations. When this happens, a business owner in Louisville may want to consider filing for Chapter 11 bankruptcy.

Through a Chapter 11 bankruptcy, the business is reorganized in a way that allows it to keep its doors open while still meeting its financial obligations. Businesses eligible for Chapter 11 bankruptcy include corporations, sole proprietorships or partnerships. Business owners considering Chapter 11 bankruptcy may wonder if they will be personally liable for the business debt.

With regards to corporations as a debtor, the corporation is a separate entity from its stockholders. Therefore, the stockholders’ personal assets will not be subject to the Chapter 11 bankruptcy, except to the extent of the value of their investment in the stock of the corporation. But, a sole proprietorship is not a separate entity from its owners. Therefore, the personal assets of the owner of a sole proprietorship, along with the business’ assets, will be subject to the Chapter 11 bankruptcy.

With regards to a partnership, the business is a separate entity from the partners, not unlike a corporation. There may be instances in which the partner’s personal assets are subject to the Chapter 11 bankruptcy. In addition, sometimes, the partners themselves who are seeking a Chapter 11 bankruptcy may also have to pursue a personal bankruptcy filing as well.

As you can see, whether a business owner is personally liable in a Chapter 11 bankruptcy depends on the type of business. Nevertheless, this post only provides general information about liability in Chapter 11 bankruptcy cases and cannot guarantee whether a business owner will be responsible for the debts of his or her business. To determine that, it may be necessary to consult with a bankruptcy attorney who can assess the business owner’s situation and provide legal advice.