There are many questions to be answered when filing for small business bankruptcy. First of all, what happens to your corporation if you file personal bankruptcy? While this answer seems simple enough, it can actually be more complex. A corporation is considered to be a separate entity. Therefore, the bankruptcy of a shareholder does not affect the corporation as a whole. However, personal shares of the corporation are considered to be personal assets. These shares will be sold and the proceeds will be repaid to creditors.
What Happens to You During a Corporation Bankruptcy?
A corporate bankruptcy does not directly affect the shareholders unless Chapter 7 is filed. For instance, shareholders would lose their stocks' value if all shares have to be sold and the business ceases to operate. However, if the corporation chooses to file for Chapter 13, then all creditors will be repaid over time and individuals will be able to keep their businesses open.
Chapter 13 will allow the corporation to keep faith with both its creditors and its stockholders. Unfortunately, Chapter 13 may not be an option if one or more of the partners have personally guaranteed loans or leases. In this case, the partner would have to file for personal bankruptcy separate from the corporation if the assets collected would not cover the guaranteed debt. Also, that partner is liable for suits filed against his personal assets.
