How to Protect Your Assets When Your Business Fails

male entrepreneur feeling stressed at work
  • The different types of protection strategies include asset protection planning, filing for bankruptcy, creating a trust, and taking out insurance.
  • Have an exit plan in place ahead of time to ensure everyone knows what their responsibilities are during the transition period.
  • Review your insurance policies to ensure they provide enough coverage if something goes wrong.
  • Take steps now to minimize damage from any potential losses caused by a failed business venture.

A failing business can cause serious financial strain and can have a domino effect on personal finances. It is, therefore, essential to have an arsenal of legal tools at your disposal to protect your assets if the worst should happen.

There are a lot of things that can go wrong when you’re running a business. Running a business can be unpredictable and risky, from cash flow problems to unexpected costs. With the right steps, however, you can protect your assets if your business fails. Here’s what you need to know.

Understand the Different Types of Protection Strategies

There are two main types of protection strategies when it comes to protecting your assets in the event of a business failure. The first is asset protection planning, which focuses on reducing potential liabilities and creating an environment where creditors cannot reach those assets. This includes setting up limited liability companies (LLCs) or other entities that may help protect personal assets from creditors or lawsuit judgments. Here are a few examples:

Filing for bankruptcy

When you file for bankruptcy, your assets are typically protected from creditors and bankruptcy trustees. The most common bankruptcy filings are Chapter 7 (liquidation bankruptcy) and Chapter 13 (reorganization bankruptcy). In a Chapter 7 bankruptcy, all of your assets become part of the bankruptcy estate and are usually sold off in order to pay off creditors. With a Chapter 13 bankruptcy, your non-exempt assets are protected, and you can enter into a repayment plan that allows you to keep your assets.

Creating a trust

Creating a trust can also be an effective way to protect your assets. A trust is a legal entity that allows you to transfer ownership of your assets from yourself to the trustee. The trustee then has control of the assets and can manage them in accordance with the terms of the trust. This asset protection helps ensure that the assets are not subject to creditors or lawsuits.


Another way to protect your assets is with insurance. Insurance can help provide financial protection for you and your business in the event of an unexpected loss or liability claim. You should consider taking out a commercial general liability policy, which covers potential third-party claims such as personal injury, property damage, and contractual liabilities.

Tax Planning

talking to an accountant about tax planning

Proper tax planning can help protect your assets from business failure. It’s essential to stay up-to-date on the latest tax laws and deductions that could provide financial relief. Additionally, you may take advantage of special provisions such as net operating loss (NOL) carryovers, which allow you to offset losses from prior years against current year income.

Have an Exit Plan

An exit plan can help you quickly move forward if your business fails. An exit plan should include details about how to handle any debts that may be outstanding and how to transition out of ownership with minimal disruption to operations.

It should also include details about how to distribute any remaining assets among stakeholders and what will happen with employee benefits if the company shuts down. Having an exit plan ahead of time ensures that everyone involved knows what will happen and their responsibilities during this transition period.

Review Your Insurance Policies

man holding an insurance policy and pen

Many businesses carry some insurance policy for their operations, such as general liability or property damage coverage. If your business fails, ensure you understand exactly what is covered under each policy and whether it will provide enough protection in case something goes wrong. You may also want to purchase additional insurance policies if necessary to ensure that all aspects of your operation are adequately covered in case the worst happens.

A failed business can be devastating for owners and employees alike, but with the right steps; you can better protect yourself—and your assets—if things don’t go according to plan. Understanding different asset protection strategies, having an exit plan ready ahead of time, and reviewing all relevant insurance policies thoroughly can help minimize damage from any potential losses caused by a failed business venture. While no one likes thinking about failure before success has even been achieved, taking these steps now will save you time and stress later on down the road should the worst happen!

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