When you have determined that you will be going out of business and cannot save your company, one of the options available to you is to file for Chapter 7 bankruptcy. This option is also available to you if you are filing for personal bankruptcy and wish to discharge consumer debts. However, there are several key reasons why Chapter 7 is different for a business.
Unique Issues with Chapter 7 Business Bankruptcy
Safeguarding the interests of creditors is often considered much more important because of the amount of money that is at stake. In some situations, the creditors may be able to shift liability for the debts from your company to yourself as an individual. Therefore, you will want to ask your business bankruptcy lawyer about steps you can take to mitigate this.
If your business is considered a "separate entity" because you filed Articles of Incorporation, you may be able to discharge the debts of your company without it affecting your own personal credit score. Your business assets will be liquidated and your business will be shut down. In most cases, once all of your business assets have been liquidated, any debts left behind will be discharged.
Abuse of Chapter 7
Depending on your income, you might be accused of abuse of Chapter 7. You may be accused of this depending on how much you income over the past five years and the amount of unsecured debt that you have. Then, your Chapter 7 bankruptcy might be converted into another form of bankruptcy and you will likely need to engage in a repayment plan.
The Closure of Your Business
Your business must be closed properly when you are filing for Chapter 7 bankruptcy. This closure must be filed with the secretary of state. Otherwise, those with an ownership interest might be subjected to liability. Chapter 7 does not come with a mechanism that allows for your business to continue to operate unlike Chapter 11.
Chapter 7 is sometimes a good idea if you believe that you will no longer be able to make your business profitable or if you simply no longer want to run your business. For example, you may wish to retire and you may not have any buyers for your business.
There are upsides and downsides to choosing Chapter 7 bankruptcy. For example, you will lose control of your business. However, after consulting with a business bankruptcy lawyer, you will be able to make an informed decision.
To get started, contact a local business bankruptcy lawyer.