It is important to note that all the assets of a sole proprietor and the assets of their businesses will be considered ONE when a debtor files for Chapter 13 or Chapter 7 bankruptcy . In other words, all of your business assets will become a part of the bankruptcy estate when filing for personal bankruptcy when your business is not incorporated.
There are some obvious dangers in this type of setup when a debtor files for bankruptcy; but the least obvious danger is that the bankruptcy trustee may require you to stop operating your business while in bankruptcy to avoid the accumulation of more debt.
The best way to protect your business from the fallout of filing for Chapter 13 or Chapter 7 bankruptcy is to incorporate your business before you file for bankruptcy. Incorporating your business will at least require the bankruptcy court to treat your business as a separate entity and give you other rights and options that you don’t have access to as a sole proprietor.