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Can A Business Owner File For Chapter 7 Bankruptcy?

It’s always difficult when a business reaches a point where it has to go out of business. For corporations and limited liability corporations (LLC’s), Chapter 7 bankruptcy is a viable option. However, it doesn’t happen often. Let’s learn more about the pros and cons of a business filing for Chapter 7.

Chapter 7 Bankruptcy For Businesses: The Facts

A Chapter 7 bankruptcy does not work the same way for a business as it does for an individual. When a corporation or LLC files for Chapter 7 bankruptcy, the owners of the company stop business entirely and hand the business over to a trustee. Then trustee then oversees a liquidation of the business and pays as much as can be to creditors.

There are no exemptions when a business files for Chapter 7 bankruptcy.

Once everything has been liquidated and the creditors paid to the best of the trustee’s ability, then the business doesn’t owe any more debts, even if the creditors haven’t been paid in full.  However, if the business owner has personal debts that are linked to the LLC or corporation, these debts are not discharged even if the business is completely liquidated.

What Happens To Personal Debts?

Personal debts relating to the business either need to be paid in full, a settlement needs to be negotiated, or personal bankruptcy must be declared.

Are The Fees Different For A Chapter 7 Business Bankruptcy?

Typically speaking the court fees are the same for Chapter 7 bankruptcy even if it is a business instead of personal. However, the trustee fees will likely be higher and an attorney must be hired if it is a business bankruptcy.

Can I File For Chapter 7 If I Have A Business Partner?

Technically yes, you can file for Chapter 7 bankruptcy if you are in a business partnership. That being said, this doesn’t happen often because it makes it easier for creditors to go after personal assets because the trustee can actually sue the partners in order to recover compensation to pay debts.

Which Debts Will Be Discharged For My Business?

Under Chapter 7 bankruptcy, the following debts can be discharged:

  1. Business Credit Cards
  2. Unsecured Debts: Debts owed to suppliers, consultants, and professionals.
  3. Medical Bills
  4. Debts For Leases And Contracts: Building lease or rental equipment.

There are debts that can’t be discharged during this process. To learn more, it’s best to contact an experienced attorney before taking any action.

Why Should I Consult With A Bankruptcy Attorney?

Not only is an attorney required when it comes to Chapter 7 bankruptcy but it’s also a good first step to take. A bankruptcy attorney can help a business owner decide if bankruptcy is actually the action they need to take and which type of bankruptcy is best for their business and for their personal outcome.

Once Chapter 7 is filed for there is no stopping it unless the court allows it to be dismissed.

Throughout the entire process, an attorney can help to ensure that all of the necessary paperwork is filed in a timely manner and correctly, can speak with creditors who violate an automatic stay, can negotiate with the creditors, and can help with any post-bankruptcy violations.


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