Small Business Bankruptcy in Ohio

Frankenstein's_monster_(Boris_Karloff)Getting Down To Buckeye Business:

  • If you’re a small business owner facing a likely Chapter 7 in Ohio or Chapter  13 in Ohio Bankruptcy, settle in. You should have worried about this before starting the business. But we never do, do we? Then, it’s all optimism, hope and future Initial Public Offerings. So, don’t feel bad.

You Gotta Keep Em Separated

  • Keep your business and personal lives as separate as possible–at least the financial aspects–by creating a corporate entity–a Frankenstein’s Monster to do your business bidding.
  • This is quite difficult as it involves a species of invited multiple-personality disorder.
  • You write checks from an account for your business and deposit them into your personal account.
  • You write promissory notes to yourself, you remind people not to make their drafts out to you, but to Anonymous Widgets, Inc. Crazy. But useful.
  • If your small business is bankrupt but you’re not and you intend to stay in business, you should read up on Chapter 11 Bankruptcy Bankruptcy protection.

What If You Didn’t Form A Corporate Entity?

  • If you’re a sole proprietor, you are your business.
  • What debts you’ve incurred as a “d.b.a” you’ll have incurred as a person, just the same.
  • What assets you’ve accumulated as a person support your business. In other words, your house is on the line.
  • Same with a general partnership, except another person has the power to make mistakes or commit crimes for which you’re equally responsible.
  • That’s why nobody who’s been properly advised does business under those forms anymore.

It’s Alive!

  • The best way to keep your business and personal lives separate is to create a one of the Frankenstein’s-monster-type entities we know as a corporation, a partnership, a limited partnership, a limited liability partnership, or a limited liability company.
  • In the modern world, there’s no sense in creating any of these golems other than a corporation or a limited liability company.
  • If you’re doing business in fourteen countries, plan to try to raise chillions in capital, or are raising polar bears trained in Kung-Fu to work exclusively in dynamite factories, then you might think of taking advantage of the hundreds of years of law brightly demarcating where a person ends and a corporation begins.
  • Otherwise, the Limited Liability Company is the way to go.

LLC: Only Entity To Ever Beat The IRS

  • LLC’s came of age when the IRS threw up its hands at trying to ferret out all the ways Americans were sneaking their cash past the corporate tax-vacuum.
  • LLC tax liabilities “flow through” to the recipients of the cash, instead of being taxed twice like a corporation, which is taxed once as a person, and whose shareholders are then taxed on their stock gains & dividends.
  • Note: The IRS holds all business owners personally liable for unpaid payroll taxes, regardless of your structure.
  • An LLC is cheap, any person–even one person–can form one, it completely separates your business and personal affairs, and offers complete liability protection for actions taken as a corporate entity.
  • Business-wise, heaven.

A Level Playing Field? No.

  • Let’s say you formed a corporate entity but, like many small business owners, when it came time to get credit, the bank wouldn’t work with you unless you were willing to obligate yourself personally.
  • We have to invoke the “multiple personality disorder” metaphor again: you and your business co-signed on the loan.
  • While your LLC or your Inc. might be bust, the bank will be eyeballing your boat, or that baseball collection, or your late mother-in-law’s neon-colored beehive-wig collection when it comes to collect.

Our Businesses, Ourselves

  • If you file a personal Bankruptcy and own a business, your share of the business is a personal asset.
  • If the business is healthy, your share can be sold for the benefit of creditors in a Chapter 7.
  • In a Chapter 13, you can pay off your debts over a 3-5 year period and protect what assets you have, including business interests.
  • Chapter 13 bankruptcies are best for people with high, constant incomes, or who have assets they really want to keep (think neon-colored beehive wigs).
  • Upon the moment of Bankruptcy filing, the Court almost always orders something called an “automatic stay.”
  • Think of it as a referee’s time-out whistle. All action, including the ticking of the clock, stops.
  • No one may collect or even contact you for purposes of collection, nor can a creditor sell foreclosed property if a Bankruptcy case is filed up to the nanosecond before the auctioneer’s gavel falls.

Be Prepared!

  • The best way to prepare for a small business Bankruptcy is to plan ahead.
  • Build your monster and let it handle its own affairs.
  • You be you, your LLC is your LLC.
  • If it goes under, you don’t.
  • If you go under, it can save your behind.
  • If necessary, resort to the protection of the Chapter 13 in order to protect your ownership interest.

Moral of the story? Plan ahead.