Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
Key Takeaways
- A corporation, LLC, or partnership receives no discharge in Chapter 7; only individuals do.
- Debts the company cannot pay survive the case, and bankruptcy does not dissolve the company.
- Anything you personally guaranteed remains yours regardless of what the business files.
- Sole proprietors are the exception, filing business and personal debts together as an individual.
If you are a business owner and you find yourself unable to pay off serious debt, there is a very good chance you are wondering what your options are. Fortunately, there are several options on the table. One of those options is filing Chapter 7 business bankruptcy. Please continue reading and speak with our knowledgeable Rockland County business bankruptcy attorney to learn more about Chapter 7 business bankruptcy, whether it is the best fit for you, and how our firm can help you through every step of the process ahead. Here are some of the questions you may have:
What Is Chapter 7 Business Bankruptcy?
Chapter 7 business bankruptcy, also known as liquidation bankruptcy, is a form of bankruptcy best suited for businesses that have little or no potential for profit. When you file Chapter 7 bankruptcy, your business will be liquidated, thereby paying off as much debt as possible. Ultimately, what happens to anything you still owe after depends entirely on how your business is organized, and it is the single most misunderstood aspect of that process.
Does a Chapter 7 Filing Eliminate Business Debts?
Your business debts will only be eliminated if your business is you. Discharge is available to individual debtors only, not partnerships or corporations. As such, that single matter determines most of what follows.
If You Are a Sole Proprietor
As the sole proprietor, you and the business are the same, as there is no separate entity. As such, you may file as an individual. Your business and personal debts will be filed in one case, and qualifying debts will be discharged at the end of your case. This is the only time a single Chapter 7 filing will apply to both sides.
If You Have a Corporation, LLC, or Partnership
As a corporation, LLC, or partnership, the entity will file, and a trustee will sell its assets and distribute the proceeds among the creditors in a predetermined order established by the law. However, the entity will not receive a discharge. The remainder of the unpaid debts will continue to exist, and the company will not be dissolved by bankruptcy either; dissolution happens under New York law, rather than federal law. The primary benefit is an orderly liquidation handled by a trustee, rather than you.
Anything You Personally Guaranteed Will Remain Yours
It is exceedingly rare that lenders extend credit to a small company without a personal guarantee from the owner, and a business filing does nothing to that guarantee. Once the company’s case ends and debts are not fully paid, the creditor may pursue you directly for the outstanding amount. Owners who require relief from guaranteed debt typically must file in their own name, which is a separate decision and one of great importance.
Does My Business Qualify for Chapter 7 Bankruptcy?
There are various situations in which Chapter 7 bankruptcy is best for businesses, including some of the following:
- Businesses that offer redundant or commonplace goods or services
- Your debts are worth far more than your assets
- You have debts so high that debt restructuring is no longer an option
- As previously mentioned, if your business is not making a profit and has very little potential to make a profit, Chapter 7 bankruptcy may be right for you.
What Happens When I File Chapter 7 Business Bankruptcy?
The first part of the process is filing a petition with the bankruptcy court, wherein you will submit various business-related documents, including your assets/liabilities, your current income and expenditures, your latest tax return, a financial statement, executory contracts and leases, and more. The moment you file Chapter 7 business bankruptcy, an automatic stay will be issued, which prohibits creditors from all further collection activities.
You will then attend the Meeting of Creditors, along with your attorney and the bankruptcy trustee. As long as you have an experienced attorney at your side, you need not be intimidated by the meeting. At the meeting, creditors and the bankruptcy trustee will ask a series of questions to get a clearer picture of your business and whether you qualify for Chapter 7 bankruptcy.
Finally, as long as the Bankruptcy Court approves, your business will be liquidated, and the assets will be sold to pay off creditors. Any remaining unsecured debt will be discharged only if the filer is an individual.
Contact Our Experienced New York Bankruptcy Firm
Bankruptcy can be an overwhelming process for many. However, it’s important to understand that you do not have to navigate bankruptcy on your own. At the Law Offices of Allen A. Kolber, Esq., our firm can help. Contact us today to schedule a consultation and discuss your options with a member of our dedicated and compassionate team.
