Chapter 7 Bankruptcy for Small Businesses

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What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcies for small business and for personal liability are different. Chapter 7 bankruptcy also allows debtors to get rid of most of their debts and start all over without having to be indebted. However, there are some drawbacks to filing for Chapter 7 bankruptcy that would have a negative effect to your future credit, reputation, and self image. Below are the effects of Chapter 7 bankruptcies for small businesses.

To file for Chapter 7 bankruptcy, fill out a petition by completing a number of different forms and file the forms with the bankruptcy court in your area. The forms typically ask information about:

What are the Pros and Cons of Filing To Chapter 7 Bankruptcy?

Chapter 7 bankruptcies will shut down and liquidate your business. It may also get rid of your personal liability to any business debt. Here is a list of pros and cons to considerer if you decide whether you want to file for Chapter 7 bankruptcy:



  • You will lose a lot of your assets that you have worked so hard for 
  • Your credit history and rating will be ruined for quite some time
  • You cannot use another method of debt relief for at least another 7 years 
  • Bankruptcy will not get rid of your student loan debt (unless your case meets an exception)
  • Bankruptcy will not relieve you from alimony of child support

Do Chapter 7 Bankruptcies Protect Business Owners?

Depending on the formation of the business entity, Chapter 7 bankruptcies may not protect the business owners. Nevertheless, the individual owners may file separate personal Chapter 7 bankruptcies to wipe out their personal liability.  

What Happens When I File a Chapter 7 Bankruptcy?

Once you have filed, debt collectors cannot collect on the debts. This debt collection process is put on hold. Instead, a bankruptcy trustee is appointed and he is responsible for selling off of the business assets to pay for the debts.

Do I Need a Bankruptcy Lawyer?

Yes, an experienced bankruptcy lawyer will guide you through the bankruptcy process and help you obtain your desired outcomes.


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Last Modified: 08-04-2015 12:53 PM PDT

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