Small business owner is scared he's going to fail and wants to know exit strategy possibilities.

QUESTION.
If my new health club venture does not pan out like I anticipate, how can I get out without losing my home? How does the bankruptcy toward the business work?

ANSWER.
Your email is not a very cheery one. I'm not sure you have provided me enough information to answer your question. If you formed an LLC or a corporation as the choice of legal entity for your business, then you can dissolve your business when it tanks. You can walk away from any BUSINESS obligation without any liability for business debts if you formed an LLC or a corporation.

However, any debts you incurred PERSONALLY you will still owe even after your business is gone. For example, if you took out a home equity loan against your personal residence and contributed the borrowed funds to your business, then you will still have to repay your loan or the bank can foreclose on your residence.

If you are married, and the house is in your wife's name, then your house may be protected from any debts you personally owe.

You will have no need for a bankruptcy for the business if you made your business a separate legal entity, i.e., an LLC or a corporation. If you didn't, and you operate as a sole proprietorship, then you may have to file a personal bankruptcy to get out of some of your business debts. That's because as a sole proprietorship you are your business and your business is you. Bankruptcy will not protect your home since the lender will have a security interest in your home assuming you signed a mortgage when you borrowed from the bank.

If you don't already have a business plan in place, then I recommend you write one ASAP. Most businesses that have a sound written business plan do not fail. Consider calling your local SCORE chapter and scheduling a 1-hour face-to-face session to discuss writing a business plan. That is SCORE's expertise if you ask me - business plans.

I hope my comments are helpful. But beware that SCORE counselors are not supposed to give out free legal advice. I crossed the line a little in responding to you this time. Good luck! Regards, -Jeff

Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
http://www.jlippin.com/