Bankruptcy is an ordeal for executives at any business, but for entrepreneurs it’s often killing two birds with one stone. Personal possessions are at stake along with the business assets. As thousands of business owners are discovering during this downturn, sole proprietors are nearly always told to file for personal bankruptcy if business debts consume them. As far as court is concerned, the person and the business are looked at the same. Their experiences teach a tough lesson for entrepreneurs trying to protect themselves during bad economic times: Prior to starting your business, you need to understand the risks and benefits waiting for you. It’s a common question asked in bankruptcy law firms about small business owners in bankruptcy that don’t realize that creditors can take their possessions if their business hits a brick wall.
In recent months, tens of thousands of business owners have struggled to hold on to homes and cars as their businesses fell apart. Total U.S. bankruptcies filings rose 36% to 711,550 during the first half of this year, compared with 522,205 cases filed over the same period in 2008. Business filings jumped 64%, while personal filings, which would include many sole proprietors who file as individuals, rose 35%. The rise in bankruptcies arrives on the wings of several years of expansion in sole proprietorships, as a booming economy convinced people the time was right to strike out on their own. U.S. Census Bureau indicates the number of companies without employees grew to nearly 22 million in 2007, a steady rise from fewer than 18 million in 2002.