Good evening, everybody. This is Bradley Bailyn, and this is Episode #13 of the Think Like a Lawyer small business podcast. I’m a small business attorney here in New York City. And today we’re going be talking about Chapter 7 personal bankruptcy to deal with substantial business debts. A lot of people are very afraid of what they’re going to do if their business does not prosper and there may be a recession around the corner. And when that kind of thing happens, there is no reason for you necessarily to be so afraid.
The two major expenses that small business owners frequently incur, which causes them to have to file a personal bankruptcy when closing down or seeking to exit a business are bank loans and office leases.
A lot of times when you lease office space, the landlord will not have confidence that your small business is going to be able to meet the substantial obligations under the lease. And so you could have personal liability for some or all of the obligations under the lease in such a circumstance where the landlord requires you to accept some personal liability.
The second thing is bank loans. A lot of people don’t even realize that they are personally liable for their business line of credit or a business credit card. But they are because the fine print says in the loan agreement that the bank gives you specifies that you are going to accept personal liability. And there you go. Now you have it.
So how does this whole bankruptcy thing work? Basically, there is something called the means test. And the first thing you need to do is either avoid the means test entirely or not have a problem with the means test.
If you have an income which is below the median income in the State of New York, then you are not going to need to take the means test. A lot of times if your full-time job was your business and the business isn’t doing well then you’re not going to have much or any income to speak of. So the means test is really not going to be a problem. If you’re married and you’re living in the same household as your spouse then there’s the possibility that your spouse’s income is also going to need to be factored in as your income. But the numbers are pretty generous. So a lot of times you don’t end up even needing to take the means test.
If your income is over a certain threshold, then you’re going to need to take the means test, which means that your income is factored in and your expenses are factored in. And then a determination is made about whether you have the ability to pay a certain amount of money to your creditors. Before you go and you file that bankruptcy you’ll need to meet with a competent attorney, either me or somebody else. And we are going to run all the formulas and figure out what’s likely to happen so that there are no surprises when you get to court.
The nice thing about a Chapter 7 bankruptcy is for most people, you’re going to be able to keep your house and your car and continue making your house mortgage payments and your car lease or financing payments, but you’ll likely be able to get rid of your personal obligations for business expenses. It’s not guaranteed, obviously… it depends on the exact circumstance, but a lot of the time you are able to do that… you’ll be able to frequently get rid of lawsuits and all kinds of other substantial business obligations and personal obligations as well, if they’re unsecured.
So if you’d like more information about this, please feel free to give me a call. Please don’t forget to click the subscribe button if you like the kinds of videos that I make so that you’re able to see it wherever it is that you typically watch or listen to these.
And for my standard disclaimer. This is just a general video made for awareness and informational purposes. I would need to know your specific factual situation to tell you what the law is in your case. Relying on anything that you read in a book or hear in a video without consulting an attorney who understands the law and how it’s typically applied and which of the facts matter in your situation could result in you having a lot of problems and liability. So again, I will not be liable if you rely on anything that you hear in this video. Thank you and have a wonderful day.
