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Bankruptcy for the Sole Proprietor
If you are a small business owner in Texas, odds are you are a Sole Proprietor. Any business that is synonymous with its owner is considered by a bankruptcy court to be a sole proprietorship. In many cases, when a sole proprietor files for bankruptcy, they are unaware of the many restrictions and limitations that they may face going forward with regard to debts and especially taxes.
When it comes to tax burdens, sole proprietorships are handled by the court and the IRS as the same entity as the owner’s personal assets. That means that if you are a sole proprietor that intends to declare bankruptcy, your personal assets are just as vulnerable as the business’s assets. In many cases, the same is true of the tax burden that falls on sole proprietors, since the IRS considers the owner of the business to be the same entity as the business itself.
If you area considering filing for Chapter 7 bankruptcy as a sole proprietor, there are several important restrictions to consider. First, you must have a higher income than the median income in your area. Second, you need to have incurred more than 50% of your debt through your business.
When it comes to filing for Chapter 13 bankruptcy as a sole proprietor, you need to have less than $394,725 in unsecured debts or $1,184,200 in secured debts. There are benefits and shortfalls of Chapter 13 as a sole proprietor as well. The major advantage is that you will be exempt from the liquidation of your assets. The major downside is that Chapter 13 doesn’t provide any tax relief.
Let Our Experience Be Your Guide.