What is the difference in filing bankruptcy for a Sole Proprietorship vs. a Partnership?

If you are a sole proprietorship or you are in a partnership bankruptcy, filing can be a tricky process. In either case, you can file individual or personal bankruptcy rather than business classifications of bankruptcy. Neither of these types of businesses are formally recognized by states as a business entity in itself and therefore, personal bankruptcy laws apply to the situation. These laws do differ from one state to the next, but there are some important details to understand.

Understanding Your Options

If you are a sole proprietor, this means that you own your business on your own. No one else has a stake in your business. A partnership can be nothing more than a handshake in which two or more people are owners in a business. When it comes to bankruptcy, remember the following:

• In some states, when one business partner files for bankruptcy, the second partner may lose some or all of the assets in the business because they are left vulnerable to the bankruptcy’s creditors. Some states protect partnership property.
• In Chapter 7 bankruptcy where partnership assets are involved, one or both of the partners can file bankruptcy to liquidate the business.

The goal of the bankruptcy should be understood in terms of if the owners wish to continue the business or shutter it.

When it comes to protecting business assets and the business itself through bankruptcy, it is critical to hire an attorney. A bankruptcy attorney can help you to determine how to protect your sole proprietorship or partnership. Bankruptcy can be a good option in both cases for some situations.