The Pros and Cons of Starting a Family Business in NJ

Our families are who we spend our lives with. We celebrate holidays, birthdays, and important milestones together. So much of our everyday lives are spent surrounded by family—but what about our work lives? Starting a business with a family member or joining the family business is a big decision. There are some major incentives and equally compelling challenges to running a family business. Before you take the big plunge, here are some pros and cons to help you make a confident business decision.

Pro: Invested Stakeholders

Having a personal investment in the business is a great motivator for job performance. Your family will have the same level of investment in the success of the business as you do. They will be much more likely to make the sacrifices necessary to ensure a successful future for the business. Finding willing workers for holidays, extended hours, or weekends shouldn’t be too difficult when the people you are counting on are all in the family.

Con: Family Leaders Face Unique Challenges

Leaders may be reluctant to make necessary business decisions if they could negatively impact fellow family members. Firing or demoting an underperforming employee can be  much harder if it is your brother or cousin. Likewise, leadership succession can cause serious conflict amongst family members if clear guidelines have not been established.

Pro: The Ultimate Coworkers

You know your family better than anyone else. You’ve likely perfected the best way to communicate with individual family members, allowing for an easy and honest exchange of ideas. This can make for a super efficient team of skilled communicators, maximizing on collaboration. You’ll also have the added bonus of coworkers you can count on to genuinely care about you and the business.

Con: Workplace Conflicts Become Family Drama

When you work with your family, small workplace issues can boil over to full on family feuds. A disagreement at work can turn into a serious rift between family members. It is not uncommon for these disagreements to extend to court litigation, which can permanently damage relationships between parents and children, siblings, and other relatives.

Pro: A Relaxed Work Environment

There’s no need to put on airs when you are working with your family members. Small talk, intimidating meetings with superiors, and one-upmanship take the backseat to a relaxed environment of mutual support and shared goals. Your family members are also much more likely to be empathetic during setbacks, allowing for increased flexibility in expectations of business performance.

Con: Things Can Get Too Relaxed

When you work with your family it’s easy for things to get too comfortable. This relaxed environment can reduce the drive for excellence and compromise workplace professionalism. Business growth can slow down over time if you and your family lose focus on doing what is best for the business on a daily basis.

Pro: Strong Market Appeal

Family owned businesses tend to brand themselves with hard work, tradition, and wholesome mom n’ pop shop appeal. Consumers often view family businesses as stable and trustworthy, leading to strong market appeal. Likewise, potential investors may see family-owned businesses as a safe investment.

Con: Clinging to Tradition Can Stifle Progress

Holding on to family traditions can promote closed-mindedness, resistance to change, and a lack of creative thinking. Family-owned businesses can be closed off to innovation and miss out on expanding their business as a result. Without outside help to shake things up, the stagnancy of ideas can kill a family business.

Pro: Less Fuss With Hiring

If you are in a hurry to get your business on its feet, going through the process of vetting and hiring potential employees can be a cumbersome barrier. With family members investing in and working for your business, you won’t have to conduct interviews, background checks, or follow-up on qualifications if you are working with your family. You know what your family members bring to the table and how to best utilize those skills.

Con: Non-Family Workers Feel Out of the Loop

With a strong group of family decision makers in the business, it might be harder for outsiders and non-family member employees to feel comfortable voicing their ideas. Family businesses can also have little or no system of meritocracy in place, only promoting family members regardless of job performance. This can lead to unqualified family members landing leadership positions in the business over otherwise well-equipped employees. Without a healthy system of promotion based on merit, potentially talented employees will have little motivation to excel.

Ultimately, the decision to go into business with your family is a very personal one. Family businesses are highly variable in their potential for success and depend mostly on the interpersonal relationships of individual family members. You know yourself and your family best. Sitting down for an open and honest conversation with your family about your potential business is a great first step to success.

Starting a Small Business in NJ: Do I Need an Attorney or CPA?

small business in nj


It’s the quintessential American dream to own a successful business. No matter what product or service(s) you’re eager to provide, every empire starts somewhere. While the popularity of Shark Tank has captured the spirit of the American entrepreneur, the statistics for success are quite grim. Over 627,000 new small businesses are started each year; however, 535,000 businesses close each year. To help your small business in NJ beat the odds and become a fixture of growth, it is important to start off on the right foot. Knowing where to begin is not always easy. You’ll need to hire the right professionals to help you navigate New Jersey’s complicated tax and business laws.

As a business owner, you’re the salesman, head of marketing, technical support provider, customer service representative, bookkeeper, debt collector, human resources department, and CEO. You need to either be an expert in each area or hire people with the expertise you need.


How to Jump-start Your Business


STEP 1: Decide on a business structure.

Some common business structures are sole-proprietorships, partnerships, limited liability companies (LLC), corporations, non-profits, and cooperatives. You can review the specifics here. This is a crucial decision, and making the right one without being informed would be a grave mistake. For this first step, you should consult with both an attorney and a CPA. Veitengruber Law can help advise you on what type of structure would best suit your business model. A CPA will advise you on how to minimize your tax burden when choosing a business structure.


STEP 2: Become an operating business entity.

To do this, you must file formation documents with the state, register your business name (for tax purposes), and obtain an employer identification number (EIN). Without all three, you cannot become an operating business entity in the state of New Jersey.

During (and beyond) these first steps, you’ll find the advice of both an attorney and a CPA invaluable in getting your business off the ground. Each provides important expertise and the right professionals will work together on your behalf.


The CPA and Your New Business


Not many people spend their leisure time brushing up on the ins and outs of business tax law. Even as a business owner, you’re probably unfamiliar with your tax exposure. A CPA is your translator and is ethically bound to give you sound business advice. Don’t try to navigate the tax code on your own.

Sales Tax

States, especially New Jersey, are notorious for changing sales tax on a whim. Is your product subject to sales tax? The NJ sales tax rate has changed twice in the last two years. Certain products are sales tax-exempt as are non-profits. A CPA can help make sure your sales tax charges are correct.


If you have employees, you’ll need to accurately reflect payroll taxes, social security, and disability on pay stubs. For a first-time business owner this can all be very overwhelming. A CPA knows how to get your pay system up and running.

Income Tax

Sound financial planning is a necessity for a new business. A CPA will help determine your tax liability and set you up with a payment plan for quarterly tax payments to help you avoid an audit. They will also help maximize your deductions. A lot has changed in the allowable deductions since the changes in the 2018 tax code, so review with your CPA what you plan to deduct.


Many small businesses require an investment from outside parties in order to grow. A CPA can help create a financial plan to make the numbers look most attractive to investors. Your goal may even be to sell your business outright, and the process of reviewing your accounting books will determine your profits.


The Real Estate Attorney and Your New Business


Location, location, location

One of the first decisions you’ll make about your business once you’ve given it a name and registered it is where you will be located. Sometimes you start out in a home office. Hopefully the business will grow to the point where you’ll need to determine an outside location. Finding the optimal space that will boost your chances of success can be a daunting task as a business owner. You’ll work with a real estate agent to help you find the right space, but your attorney will be reviewing all contracts, leases, inspections, and will look for liens on potential locations.

Room to grow

There are many factors you’ll need to consider like whether to rent or buy. What size space is best suited for your current needs but can also accommodate future growth? Locales with heavy foot traffic, access to major roadways, proximity to your client base, and low crime rates may be more expensive but will be give your business the best chance for growth. Should you decide to rent a space, your real estate attorney will assist with any issues that arise with your landlord.

Veitengruber Law can also help your business in areas outside of real estate law, such as:


A common misunderstanding among many small business owners is that by incorporating into a formal business structure (as mentioned above), you’ll be free from all personal liability. While there are instances where you can be held personally liable, they are specific, and Veitengruber Law will spell out your personal liability as a business owner so that you don’t end up getting sued. Knowing the rules is very important!

Asset protection

In addition to lawsuit risks, you can also run into contract disputes and torts (actions that result in damages) when you own a business. Protecting your business assets is key, and this is one area in which Veitengruber Law is proud to be extremely well-versed.

Debt Negotiation

As your business attorney, we will form an important relationship with you throughout the life of your company. When your business hits a bump in the road, such as taking on too much debt, Veitengruber Law will be just a phone call away to assist with difficult creditors. We can help you formulate a plan to avoid getting into too much debt in the first place, but we do recognize that debt happens.


Attorney and CPA: Working Together


It is important that your CPA and attorney work well together. Veitengruber Law can recommend several experienced and trustworthy local CPAs from our extensive professional network. Together we can create a top-to-bottom budget that will fit your business needs.

Drafting the right Attorney/CPA combination is one of the most important steps you can take as you start your small business. Although it can be tempting to “do it yourself” in order to save money, the investment of hiring experienced professionals like Veitengruber Law will give your business a much higher chance for long-term success.



An Entrepreneur’s Guide to Start-Up Funding

Here at Veitengruber Law, we are big fans of entrepreneurship. After all, that’s how our firm came into being! Taking the leap from a traditional job with a regular paycheck (not to mention health insurance benefits and potentially more perks) is an intimidating move, for sure. However, if you have a true entrepreneurial spirit and know you would be happier working for yourself, getting start-up capital is one of the biggest hurdles you’ll have to clear. Today, we present you with a guide to finding the right funding for your new business.

Where to start:

Be sure that you have a service or product that will be profitable, as well as funding sources.


How to avoid failure:

Be able to finance your product or service, in order to bridge the gap between concept and product/service.


Three ways in which most entrepreneurs are negatively impacted:

1) Bad concept/idea: This leads to a lack of funding from outside sources. Marketing is key.

2) Lack of plan/strategy: In this case, the idea can be superb, but the entrepreneur has not completely researched the concept and has not created a proper rationale for profitability for potential investors.

3) Not understanding the financial aspects: In this case, the entrepreneur may have created an excellent idea and strategy for the product/service; however, he or she doe not have a full grasp on locating funding.


There are six major strategies for locating funding options:

1) Venture capitalists: This person is an individual who invests directly with a company, while earning a stake in the shares of the company in return. This is the most typically misunderstood, yet best options of these six funding avenues.

2) Angel investors: This type of investor is similar to a venture capitalist, but he or she has a more hands-on approach. Angel investors can be located through one’s community; particularly through local investing and entrepreneur groups, as well as the Small Business Association (SBA).

3) Bank loans: This is a popular avenue for investment with local banks providing small loans to local businesses. This should be one of the primary options to either accept or exhaust, depending upon the outcome. However, keep in mind that in the past decade many of the policies for lending have become increasingly strict.

4) Private funding: This source of funding typically comes from family and friends of the entrepreneur, which makes this option one of the most feasible. Typically, family and friends will invest directly with the person they know before an angel investor or a venture capitalist would readily invest in the company/service. However, always be aware of the fact that borrowing money from close relatives and/or friends could have a major impact on your relationship.

5) Self-funding: This option involves using personal property to fund one’s company or service; for instance, liquidating assets to utilize the money directly, taking out an extra mortgage on one’s home, or utilizing credit cards. This is the highest risk option, due to the potential ramifications of investing poorly.

6) Crowd funding: This method of funding is one of the newest and most popular ways to invest in one’s company/service. The websites Kickstarter and Indiegogo, for instance, provide a platform by which entrepreneurs can showcase their product/service without having to provide the investor with equity of the company.



What to do When Your Client Files for Bankruptcy

NJ collections attorney

From the perspective of a company owner doing business with a client (or company) who files for bankruptcy: how can you go about getting (even some of) the money you’re owed?

The second someone files for bankruptcy of any type, the Automatic Stay slams down like a sledgehammer – coming between the bankruptcy filer and anyone they owe money to. The Automatic Stay protects debtors during the bankruptcy process by making it illegal for any creditor to make contact asking for money.

Why can’t I contact my client?

After all, you and your client likely signed a working contract wherein you agreed to provide services and they agreed to pay you X amount of dollars for said services. Even though you continued to provide your end of the deal, your client filed for bankruptcy and now you aren’t even allowed to contact them. This can be very frustrating for a business owner who is owed payment(s) – money that may very well be making or breaking the creditor’s own business.

The reason you can’t contact a bankruptcy client is because the Automatic Stay is a protective measure put into place by the bankruptcy court to protect struggling debtors. It gives them enough time and breathing room to gather their financial information and meet with their bankruptcy attorney and/or a potential NJ credit counselor to come up with a plan that makes sense for getting them back on their feet again.

Chapter 11 and 13 bankruptcies are filed with the intention of reorganizing monies owed into a more feasible and achievable payment plan. As soon as these bankruptcy cases are complete – you will once again begin receiving payment from your client. According to their debt reorganization plan, you may not receive the full amount due, but you will get paid.

That’s the good news.

The bad news is that the vast majority of bankruptcies filed today are chapter 7, which entails debtors liquidating assets and discharging many of their debts altogether. If your client files for chapter 7 bankruptcy, you may have to write off their past due amount as a loss. In any case, remember NOT to contact them at all until you receive notice that their bankruptcy case is no longer active in the NJ Courts system.

To contact a debtor while they are actively going through the bankruptcy process (if an Automatic Stay is in place) means that you risk being sued. You will have broken the bankruptcy code if you even attempt to contact a bankruptcy client.


What You Can Do:

  • File a Proof of Claim – Downloadable from the USCourts online and easy to fill out.
  • Attend the Meeting of the Creditors; also known as the 341 Hearing – At this meeting, you will be able to question your client. You’ll also be permitted to object to the repayment or reorganization plan if you deem it unfair.
  • Thoroughly review any plan that is formulated by the debtor and their trustee. If less than half of their creditors do not consent with the plan, it won’t be approved by the bankruptcy court.
  • Make sure you are listed on the Creditor Matrix.
  • Wait and see. Truthfully, most of your time will be spent waiting to find out the outcome of your client’s case. If the case is dismissed, or “thrown out,” you will once again be allowed to attempt collection. If an agreement or repayment plan was formulated, you will receive a notice about how much you can collect. Be sure that all of your contact information is correct with the bankruptcy court and your client’s bankruptcy attorney to ensure you will receive any and all payments.


Filing for Bankruptcy as a New Jersey Business Owner

Starting and running a small business is a very challenging endeavor, even for the most business-savvy entrepreneur. In fact, most entrepreneurs start a number of businesses before they find one that takes off. Sometimes, a business venture simply doesn’t pan out, no matter how much effort you’ve put into it.

If you’ve started struggling to pay your business lease every month – now’s the time to really start considering your options before problems begin to surface in your personal finances as well.

When your business debts have become more difficult to manage but not out of control, you may be able to salvage things with some refinancing and debt negotiation. On the other hand, if your debts are virtually unmanageable and you see no light at the end of the tunnel, filing for bankruptcy may truly be your best choice.

As a business owner, should I file for chapter 7 or chapter 13 bankruptcy?

Whether you’re filing for bankruptcy on your own or as a business, you can file for either chapter 7 or chapter 13. In both cases, you’ll have to meet certain qualifications in order to file. For example, the only instance in which you’re permitted to file chapter 13 in New Jersey as a business is if you are a sole proprietor. Corporations, partnerships and LLCs (Limited Liability Company) are not eligible for chapter 13 bankruptcy.

You can, however, file for a personal chapter 13 bankruptcy at this time, even if your business doesn’t qualify for chapter 13. In doing so, you’ll be able to keep the business assets while you repay debts through what is called a reorganization plan. This is the best bet if you want to continue running the business after you file for bankruptcy. This option may be appropriate if you made some mistakes along the way that you have now remedied, making it more likely that the business will succeed. If you don’t meet the requirements to file for chapter 13, your business may qualify for chapter 11.

Any business entity has the right to file for chapter 7 bankruptcy. If you the sole owner of the business, you will also be required to file for a personal chapter 7 bankruptcy simultaneously. This is due to the fact that sole proprietors are legally the same entity as their business. Additionally, a business that files for chapter 7 will not receive a discharge of their debts.

Again, if you wish to continue operating the business after the bankruptcy, you’ll want to file for a personal chapter 7. This will wipe out your liability for said business’s debts, which may allow you to get a better hold on things and start over with less debt overall.

If your ultimate goal is to close up shop and move on to greener pastures and your company is a partnership, LLC, or corporation, you can file for chapter 7 as a company. In doing so, you will essentially turn over all of your business assets to the bankruptcy trustee to be liquidated. This means all of your business property will be sold in order to pay back the debts you accrued that you couldn’t repay.

For more information on filing for bankruptcy as a business, request your free case evaluation at the bottom of our website’s home page. Veitengruber Law can help you determine which NJ bankruptcy is right for your unique situation.


Image: “Store Closed” by Chris Chan – licensed under CC 2.0

Better Networking Strategies for the Modern Small Business Owner

Every small business owner recognizes the importance of networking. You can’t be an entrepreneur today and not hear or read the buzzword “networking” at least several times a day.

However, this doesn’t mean that every small business owner is equally adept at reaching out and working the circuit. If you need help or ideas when it comes to your personal networking plan, you’re not alone. Networking can be one of the more challenging aspects of owning a business because it involves stepping out of your comfort zone.

Difficulty level aside, reaching out to other entrepreneurs is a crucial part of how successful your small business can be. It’s a great way to generate leads which can increase your customer base, and it can also help you to learn and grow as a person and business owner.

Give the following networking tips a try – you might be better at networking than you thought!

Focus on forming relationships

Instead of going into the networking process with the mindset of striking a deal at every turn, commit to the concept of forming friendships with other like-minded entrepreneurs.

The traditional approach to networking through formal meetings and conferences can still be effective ways to hook up with other business owners, but you should also constantly be thinking about making authentic contacts as you move through your workday. You never know who may end up being your next great connection.

Knock the pitch out of the park

No matter where you do most of your networking, you have to make an incredible first impression. With only seconds to impress upon someone why they should want to continue connecting with you in the future, have an elevator pitch prepared and ready to go at a moment’s notice. Naturally, work on honing your go to introduction so that it sounds less like a pitch and more like a good reason to get to know you better.

Be honest about your intentions

Even as you work to change your mindset towards building relationships that last, leading with honesty is always the best policy. If you’re looking to expand your company‘s reach into a new geographic area, a good tactic can be reaching out to friends of a friend. Reveal your motives as you give your elevator pitch and then quickly transition into committing to the “slow burn” of long-term relationship-building.

Use social media

Small Business Trends Magazine reports that, as of November 2016, 97% of adults who use the Internet either utilize or visit a social networking site regularly. The most popular social networking sites include: Twitter, Instagram, Pinterest, LinkedIn and Facebook.

Cyber-networking has actually proven to be quite successful and prosperous for many modern small business owners. Connect online with local entrepreneurs in your industry as well as those who may complement your business. Often, online connections can prove to be as fortuitous in business as they are in romantic comedies.

Leave an impression (and your contact info)

As you work to grow your networking circle, remember to always have plenty of business cards on hand. Even if you make a lasting impression, it will mean little if your new connections don’t know how to contact you. Many business owners today still favor traditional business cards, while others have transitioned to the digital business card. It’s a good idea to be familiar with how to create, share and exchange the more modern e-business card while still carrying paper business cards, so that you are prepared for the preferences of anybody you meet.


Image: “Cheers” by Jakob Montrasio – licensed under CC by 2.0

How to Start a NJ Business When You Have a Poor Credit Rating


If getting out of corporate America by becoming your own boss is your main goal as we roll into 2017, there are a lot of steps you’ll need to take to make it a reality. Starting your own business is without a doubt a challenging undertaking, but it has been done by many before you, so take heed that it can be done! However, if you’re starting the process with a low credit score, you’re already a bit behind the eight ball. Rest assured, though, that this does not mean entrepreneurship can’t happen for you.

Facing the fact that your credit score is less than ideal can be difficult, especially if you’ve managed to “get by” for years without giving it too much thought. By taking no action at all and simply burying your head in the proverbial sand, your score will never improve. Since starting a business is important to you, you’ll have to make smart borrowing choices that will enable you to launch while increasing your credit score simultaneously. In turn, you’ll have access to more financial resources later when your business expands, because your score will have gone up. It is more important to have a good credit score as your business grows, so you have that on your side. You’ve got nowhere to go but up!

In order to get your business off the ground, try these approaches to getting the start-up cash you’ll need:

  • Phone a friend. If you’ve ever watched an episode of Shark Tank, you’ve probably noticed that many of the entrepreneurs on the show report getting a large percentage of their start up costs by asking friends and family for loans (or investment in the company). While it may be difficult to ask loved ones for financial help before you have established your new company, this is one way you can avoid your low credit score prevent you from borrowing money.
  • Apply for grants. Although it can be very challenging to find a grant program that is willing to donate money to your new start-up, it is possible. This is especially true if your company is in the healthcare field or is a retail business in a struggling geographical location. Downtrodden areas with lower-income residents are frequently looking for new businesses to give a boost to their current economic status.
  • Look for a microloan. It is what it sounds like – a tiny loan, but if you have exhausted all other options, something is better than nothing. Lenders that are not affiliated with a bank do exist, and for many of them, their main purpose is helping entrepreneurs with low credit scores. Not only are they more likely to lend you money than a traditional bank or lender, but borrowing from them will also cause your score to rise! Naturally, that will only occur if you’re making your required payments on time, but with microloans the payments will be much more manageable.

The most important thing to remember if you dream of starting your own business is this: don’t give up just because of a low credit score. Today’s society revolves around the buying and selling of goods and services – now more than ever before!

Additionally, for those who are contemplating starting a business in New Jersey – our state welcomes you and wants to help you find the resources you need to succeed. More business in the Garden State means a better NJ economy! To learn more about special financing and incentives available to you, visit The Cornerstone of Financial Justice, where you’ll receive full service solutions to your credit score and business loan challenges.


Image credit: CCPixs

Can I File for Bankruptcy if I’m Self-Employed?


If you are currently employed in New Jersey, you’re either considered a traditional “W-2 employee” or an independent contractor. If you report to the same location every day where you work on tasks assigned to you by your boss or other superior and you receive a paycheck (typically) every two weeks from the payroll department, you’re an employee.

On the other hand, if you provide services for clients without taking direction from anyone and clients pay you directly – you are an independent contractor. Sometimes independent contractors are referred to as freelancers or “1099ers”.

Both categories of workers described above are required to pay income taxes and file yearly tax returns at the state and federal level. Traditional employees will be given a W-2 form by their employers. The W-2 form explains how much of an employee’s salary was withheld and used to pay income taxes. It is very useful when filing taxes, as it tells the employee exactly how much they still owe in taxes for the year, or how much they overpaid, which will be paid back to them in the form of a refund.

If you’re an independent contractor, you don’t have an employer to keep track of your income and tax withholdings. It is your responsibility to maintain accurate income records and make either estimated income tax payments in quarterly installments or one lump sum income tax payment at the time that you file your tax return.

Just as filing income taxes is more complicated if you’re an independent contractor, the same is true if you plan to file for bankruptcy. In fact, a major determinant of whether or not you will qualify to file for bankruptcy is your income. You will be asked to accurately report your income on your initial bankruptcy paperwork regardless of your employment status.

Although it will be more difficult to accurately prove your income as an independent contractor, it is most definitely within your rights to file for bankruptcy. You simply have to be more diligent about providing proof of your income. Falsely representing your income in a bankruptcy proceeding (even accidentally) is reason for dismissal of your case.

Today, many people work as freelancers all around the world, and technological advances in banking have made documenting your independent income totally plausible. If you have clients who pay you using a variety of payment methods, you can report your income by providing a copy of your bank account statement. It is imperative that you maintain a separate bank account where all of your income will be deposited.

Regardless of how your clients pay you (paper check, PayPal, Square Up, etc) – make sure that you then deposit that money immediately into a bank account that is designated for income. Do not deposit any money into that account that isn’t income from your job as an independent contractor. That makes filing your taxes, and in this case, filing for bankruptcy, much easier because there will be a record of all of your income.

Standard employees and freelancers alike all have to pass the New Jersey Means Test in order to be approved to file for bankruptcy. Filing for bankruptcy as an independent contractor adds a level of difficulty into the process that could easily cause you to make fatal mistakes that can result in dismissal of your case.

Talk to a New Jersey bankruptcy attorney before you file any paperwork on your own. Even if you simply take a free consultation (offered by many attorneys), you will walk away with valuable information and the understanding that, instead of being unable to afford an attorney, you actually can’t afford to proceed without one.

Image credit: Ray S.

Can I Discharge Business Loans in a Bankruptcy?

store closing

Knowing that a large percentage of your personal debts can be discharged or forgiven by filing for bankruptcy, many business owners  wonder if the same would be true for loans they took out to start a small business.

Unfortunately, nearly all loans taken out by any small business will have been guaranteed by the owner(s) of the business. Lenders do not typically grant loans to new small businesses without the personal guarantee of the company’s owner(s). Therefore, even if you do file for bankruptcy for the loans you took in order to get your business off the ground, you will still be held personally responsible for the repayment of the debt(s). Because of this, filing for small business bankruptcy in order to recoup your initial business loans will not be very effective.

Another faulty belief held by many new business owners is that an incorporated business will mean protection for the owner(s) if the business fails. The reason why this belief is faulty is because, as previously mentioned, most small business owners are required to guarantee any loans they take out for their start-up. Anyone who has personally guaranteed the loan(s) s/he took in order to specifically start their business will not find any protection in incorporation.

Filing for bankruptcy for a failing business usually does not offer a whole lot of help to the business itself. Bankruptcy discharges aren’t even granted for businesses that are closing their doors. Therefore, if your business just isn’t going to make it, don’t waste your time filing bankruptcy paperwork for the business itself. YOU are the person/entity who will need protection, so you should consider filing a personal bankruptcy and attempting to discharge debts related to your business. These kind of debts can typically be discharged in an individual bankruptcy matter.

On the other hand, if you think that your business is going to survive and (at some point in the future) thrive, but you are just having some temporary trouble keeping it afloat, a business bankruptcy may help protect it from going under. It should be noted here, though, that most small business that file for bankruptcy do not make it through to the other side with their doors still open.

Filing for bankruptcy for your small business can give you time to reorganize your business finances and debts. As a business owner who would be able to stay in business with a reconfigured budget and restructured debts, there are two bankruptcy options. Both Chapter 11 and Chapter 13 bankruptcies allow businesses to stay open by organizing a more realistic financial plan for the business owner(s).

Both Chapter 11 and 13 bankruptcies offer you the ability to maintain ownership of any business properties. In order to do so, you’ll be required to sell any unnecessary assets for profit, to help you pay down your existing debts. Additionally, your secured business debts will be modified to make the payments more realistic for your budget.

Where possible, it is advised to file for Chapter 13 bankruptcy if you are the sole owner of your business and if you meet the debt limitations required under Chapter 13 bankruptcy law. It is a less expensive and usually much faster option to file Chapter 13 instead of Chapter 11. However, if you do not meet the eligibility requirements for Chapter 13, you can file under Chapter 11. No debt or income requirements/limits exist regarding filing for Chapter 11 bankruptcy, but as mentioned, it can be expensive and time consuming.

You can learn detailed information about your particular bankruptcy needs by working with a NJ bankruptcy lawyer near you. Each case is unique, and your attorney will review all specifications relating to your business and debts in order to best advise you about your options.

Image credit: Bradley Gordon

If I File for Bankruptcy, Will I Lose My Business?

Aged Come In We're OpenIf you are considering filing for a personal bankruptcy in New Jersey and you are a business owner, the biggest question on your mind has got to be, “Will I be able to keep my business?”

After all, your business is your livelihood and likely provides you with your income, so many business owners who incur personal financial troubles wonder how they will be able to provide for themselves and their families if their business goes under due to filing for a personal bankruptcy.

If you are filing for a Chapter 7 bankruptcy, whether or not you will lose your business largely depends on what type of business you own. If you are a sole proprietor, you may be forced to shut down your business (hopefully only temporarily). This needs to happen so that the bankruptcy trustee can fully evaluate the value of your business and if any of your business assets qualify for exemption. This process may take several months, but after that you may* be able to reopen your doors.

Those sole proprietors who have no assets, such as freelancers and consultants, most likely will be allowed to continue working because they have a low risk profile of incurring further debt.

If you are part owner of a partnership or LLC (Limited Liability Company), the trustee will most likely be prohibited from taking any assets from the business because it will affect the other members/partners. However, your percentage of the profits earned by the partnership or LLC will be taken into account in your bankruptcy, and the trustee will be able to take any of your profits in order to pay off your debts. Sometimes, partnerships or LLCs will require you to bow out of the company before filing for bankruptcy. If you signed an agreement to this effect, you could be sued by the other owners if you file for bankruptcy while still involved with the company. This is a very important detail that you must examine before beginning the bankruptcy process.

In order to avoid these difficulties, it is a good idea to set up your business as a corporation. This means your business will be considered a legal entity and you will have a share in the corporation. During a Chapter 7 bankruptcy proceeding, your share of the corporation will become property of your bankruptcy estate, however, you will be able to repurchase your share of the business after your bankruptcy is finalized.

Forming a corporation will allow you to file for bankruptcy without dragging your partners down, because they will also be shareholders in the business, and their shares will be unaffected by your personal bankruptcy.

Another option is to file for a Chapter 13 bankruptcy rather than Chapter 7. A Chapter 13 bankruptcy reorganizes your debts in such a way that they are much more manageable for you to repay. A Chapter 13 will allow you to retain possession of your business assets – which will in turn allow you to keep your business doors open without any worries. You will not be able to discharge your debts, but they will most likely be significantly reduced.

The bottom line regarding filing for personal bankruptcy when you also are a business owner is to work closely with a NJ bankruptcy attorney who has experience helping business owners get their finances back on track without losing their business in the process.

Image Credit: Czarina Alegre (Flickr)