Small Businesses and Bankruptcy Filing Small Businesses and Bankruptcy Filing

Interviewer: Say you're a small business owner who's not doing so well in business due to the economy or what have you, and they file a bankruptcy. Are they able to do that against the company, and if they do, do they have to close that company?

Vance: If I an individual that comes in and they own a small business, and they're incorporated or an LLC type structure, their options vary. If they want to keep the company operating, we can do that. I would put them in a Chapter 13 bankruptcy and try to keep the company operating.

Some Small Business Owners are Personally Liable for Their Company's Debt

However, if the company is overloaded with debt, sometimes a lot of these small business owners are personally liable for the debt.

Vance: This may apply to sole owners or a small corporation or LLC. When they open up an account with these vendors, sometimes they have to sign as being personally liable for anything or if they get a loan from the bank, they have to sign for personal liability.

What I try to do is protect them and their personal assets, so they would have to file a personal bankruptcy to protect their personal assets. If the company has debt, I just tell them, "Just close this down and open another company if you want to continue operating like this."

Interviewer: Would be able to open a separate organization then?

Vance: Yes. You have to get a new tax ID number, and a new name, so you would be starting over from scratch.

Does a Bankruptcy Cover Overdue Child Support Payments or Student Loans?

Interviewer: What about child support payments? If a parent is behind on child support payments, would filing bankruptcy cover that?

Vance: No. They are non-dischargeable. It means that you cannot get rid of those, and quite often, if people do have a lot of child support payments, you can pay those off through a Chapter 13 bankruptcy, but no, no child support balance is ever dischargeable. You have to pay it all in full.

Interviewer: What about student loans?

Vance: Student loans are also non-dischargeable.

How Does Bankruptcy Affect Back Taxes?

Interviewer: How does filing bankruptcy affect taxes?

Vance: I was just dealing with a tax issue this morning. Some taxes, if they're over three years old and the return was filed over three years ago, some of those tax balances are dischargeable to bankruptcy.

Taxes Less than Three Years Overdue and Included in a Chapter 13 Bankruptcy Filing Will Have All Late Penalties Removed

The ones that are less than three years old, if you include them in your bankruptcy filing, you can pay them off through a Chapter 13 bankruptcy, and the penalties stop accruing on the amount that is due.

Any accrued penalties will be removed from the balance, so what you're paying back is just any interest that has accumulated and the principle amount, so it just depends on how old the taxes are. I had a debtor that came in here, and he had almost $400,000 of IRS debt, and he owed every bit of it.