About Sole Business Proprietors & Chapter 7 Cases

Alberto Montefalcon serves individuals who need to file bankruptcy. Many are consumers, some married, some single, who need to address and solve their problems related to financial hardship. At times, some of these individuals operate their own businesses as sole proprietors. How does this affect a bankruptcy case? What if a sole proprietor’s business debts are the primary reason necessitating a bankruptcy filing?

Because a sole proprietorship is not a separate legal entity like a corporation, limited liability company, or partnership, sole proprietors are personally responsible for all debts related to the business. Because a sole proprietorship is not a separate legal entity, it may not file a Chapter 7 bankruptcy in the name of the business. Instead, a sole proprietor must file a personal Chapter 7 bankruptcy case in the name of the individual.

Once an individual case is filed, with the exception of the effect on the means test, it is irrelevant whether the debts were primarily incurred by the individual or the sole proprietorship. Thus, an individually-filed bankruptcy case achieves the same result as a bankruptcy case filed by a business. When a discharge order is issued for the personal debtor, such an order discharges both personal and business debts.

Note that a debtor is not required to complete the means test if over 50% of his or her debt is business related, i.e., is not consumer debt. This is clearly an advantage to anyone with both consumer and business debt that needs to file bankruptcy because of overwhelming financial hardship. More about this in a future blog!

Anyone may reduce the stress of the difficulties in repaying debts. Contact the experienced Sacramento metropolitan area/Northern California attorneys at the Montefalcon Law Office. Contact us online or schedule a bankruptcy consultation at any of our three conveniently located offices. Telephone our downtown Sacramento office at (916) 444-0440, our South Sacramento office at (916) 399-9944, or our Concord office at (925) 222-5929.