Should Your Business File A Chapter 7 Bankruptcy?

For many of us who have businesses, we find ourselves with a double problem. We may have personal debts—related or unrelated to the business—but our business has debts too. You know that Chapter 7 wipes out your debts, so why not do the same thing for your business—file a Chapter 7, wipe out your business’ debts and then start fresh?

No Debts are Discharged

The problem is that it doesn’t work quite like that. Unlike people, businesses don’t come out of a Chapter 7 bankruptcy with any debts discharged. A business’ debts survive their Chapter 7 bankruptcy. That is one large deterrent to bankruptcy for your business. But that doesn’t mean that a bankruptcy can’t help in other ways.

Liquidation Benefits

One way Chapter 7 can help your business is liquidation. A lot of companies don’t have the cash flow to pay their debts. But they do have assets, assets they may not want to lose, but could stand losing, if it paid off their debts. The problem is how to convert those assets into cash. You may not have the time, resources, know-how or ability to do that.

But a bankruptcy trustee does. Chapter 7 may not get you a discharge. But it could help pay off your debts, if you’re willing to give up a few assets or some property.

The trustee can actually serve a purpose and perform a service for you, in a way, acting as a professional liquidator. Because the trustee makes more money the more your creditors get, they are more motivated to make sure you get top dollar for the property being liquidated.

Even better is that if the property sells for enough, you may even be able to pay off some personal guarantees you may have made on that business debt—debt that would not otherwise be discharged, unless you file a personal bankruptcy,

Getting Rid of the Business

In many cases, the trustee will take control of the business once you file for bankruptcy. This could be a negative, but some people may just be done with the business, and may want to just move on with their lives. This is a chance to simply hand over the business to someone else, and let them deal with creditors, liquidating assets, and other measures that would normally cost you time, and possibly, some legal headaches.

If you don’t want to give up the business, you still could file for Chapter 11 bankruptcy, which would allow the business to be restructured.

Although there is no discharge in a business bankruptcy, there is the automatic stay. This is an immediate stopping of all collections activities against your business. Everything from collection letters to lawsuits, to post-judgment collections on judgments, stop, immediately. This can provide much needed relief, and some time, to work out financial affairs.

Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today for help managing any kind of debt.

Resource:

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics