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:
- your property
- your current income and monthly living expenses in your household
- your debts that is currently owed
- property you claim the law allows you to keep through the Chapter 7 bankruptcy process (called “exempt property”) — most states let you keep some equity in your home, clothing, household furnishings, Social Security payments you haven’t spent, and other necessities such as a car and the tools of your trade
- property you have owned and money you spent during the previous two years, and
- property you sold or gave away during the previous two years.
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:
- Bankruptcy will relieve you from all of your financial debt and obligation
- You would no longer owe money
- Chapter 7 bankruptcy proceedings is a quick process and does not remain with you for years
- Most states allow debtors to keep certain property that they need either for living or for work
- 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
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.
- For sole proprietors, you can potentially wipe out your debt and continue to operate the business.
- For partnerships, corporations and limited liability companies, business owners are generally not released for their personal liability to the business debt.
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.
Yes, an experienced bankruptcy lawyers will guide you through the bankruptcy process and help you obtain your desired outcomes.