Attorney Explains How A Person With Business And Personal Debt Is Handled In A New Jersey Bankruptcy Case.
As I explained in my other blogs, two people who owe a joint debt, in New Jersey, both owe 100% of the debt. This means that the creditor may sue each person for the entire debt, or any percentage of the debt. By way of example, a creditor may receive 80% from one co-debtor and 20% from another, or 40% from one co-debtor and 60% from the other. Obviously, the creditor may not obtain more than the total amount due on the debt.
A corporation “Corp” and limited liability company “LLC” are separate and distinct entities. For the purposes of this blog a corporation “Corp” and limited liability company “LLC” are synonymous and both will be referred to as a “Corp”. A “Corp” has similar characteristics of a person, regarding many creditor and debtor legal issues. The same explanation in paragraph one above applies to a “Corp” that owes a joint debt with a person. In other words, a creditor of a joint debt, with a person and “Corp”, may sue the person for the entire debt and/or the “Corp” for the entire debt. Additionally, in this scenario, the creditor may sue the person and/or “Corp” in any percentage for the outstanding debt.
A person that is operating her business, that is not designated as a “Corp” is treated as personal debt and not as separate debt. For example, the debt due to a business, such as John Doe’s Lawn Service, that did not establish a “Corp with the state, is a debt that is owed solely by the personal owner and not the business.
In New Jersey, a “Corp” may file a chapter 7 to liquidate the business or a chapter 11 to reorganize the business. However, a “Corp” cannot file a chapter 13 to reorganize. A person can file a chapter 7 to liquidate and a chapter 13 to reorganize. Additionally, a person is also permitted to reorganize through a chapter 11. However, typically, a person would only file a chapter 11, unless the debt is substantial, Typically, chapter 11 filing fees and attorney’s fees are considerable.
If a person owns a business that is not related to a corporation, the person may resolve all business and personal debt through a single bankruptcy filing. Under this scenario, a person may file a chapter 13 or 11 to reorganize the business and personal debt, or a chapter 7 to liquidate the business and personal debt. If a person owes joint debt with a “Corp”, the “Corp” and person must file separate bankruptcy cases to resolve each of their respective debts.
You may contact Robert Manchel, at 866 503 5644, for a free bankruptcy consultation.