The Differences Between Personal and Professional Bankruptcy

Though personal bankruptcy and professional bankruptcy can seem very similar in some cases, there are some important legal differences between the two. In some cases, the bankruptcy of the proprietor actually engulfs that of the business, and thus professional bankruptcy would be of no use. Legal variances like these can be very tricky to navigate, and are really best handled by a specialized bankruptcy attorney. However, for your own personal research, here are a few of the differences between the two:

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Business vs. Business Proprietor

Business owners with personal debt have very little to gain from filing for professional bankruptcy; in general, bankruptcy courts will not acknowledge differences between the debts of the business owner and the debts of the business. What this means for the entrepreneur is a bankruptcy that does not protect critical assets likes a house and car in the way that filing for a personal bankruptcy under Chapter 7 or Chapter 13 would. It would also fail to stay credit collectors in the way that a personal claim would. Basically, what this boils down to is that it is often in a business owner's best interest to either only claim personal bankruptcy, or at least to file a separate professional bankruptcy in addition to the personal claim. This can clearly be a pretty complicated situation, but a good personal bankruptcy lawyer will be able to help you divide your life and your assets from those of your business.


Oftentimes state laws will hold corporate officers and directors personally liable for certain corporate debts or acts. Acts such as failure to pay employee wage, withholding taxes to government agencies, or payment of dividends to shareholders when the corporation is insolvent would be placed as the personal liability of corporate directors and officers. Also, any personally guaranteed loans for corporate lines of credit or administrative real estate leases will not be stayed by the court. This means creditors will not be stopped from seeking collection, whereas with a personal bankruptcy claim they would.

Finding Legal Counsel

If you do decide that you would like both the protection of your most critical assets and the protection from your creditors that filing for personal bankruptcy can bring, your first step should be to seek out a good personal bankruptcy attorney. An attorney that specializes in helping people and protecting personal assets rather than businesses will be the best ally you can have in getting through this stressful and emotional time. Their expertise can help you from start to finish, from figuring out if you qualify to advising you every step of the way.

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