When a Chapter 7 bankruptcy is filed, an immediate hold goes on any collection activities by your creditors. In a personal bankruptcy, all dischargeable debts go away and the debtor is no longer responsible for paying the debt. A trustee sells of any non-exempt assets and pays creditors in order of their priority. For a business bankruptcy, however, there is no discharge and no exemptions – all of the business assets are sold and the proceeds are distributed among the creditors.
If you are the owner of a sole proprietorship, meaning you did not for a specific business entity, your personal assets and business assets are one in the same. If you file a Chapter 7 bankruptcy, there is no real distinction between your business assets and your personal assets. Therefore, exemptions can be used to protect both business and personal assets. You may be able to wipe out the debts and then continue to operate the business.
In a partnership relationship, the business is considered a separate legal entity and it can file a Chapter 7 bankruptcy as a business. The trustee will close and liquidate your partnership business in order to pay off the business creditors. If there is not enough assets to pay off all of the partnership creditors, the individual partners will only be liable if they were personally liable for the partnership debt. If you are personally liable for partnership debts, you may have to file Chapter 7 bankruptcy personally to relieve your debt obligations. In the alternative, the trustee can sue the general partners to pay any remaining creditors.
A corporation is similar to partnerships in that it can file Chapter 7 bankruptcy, but it does not receive a discharge. The trustee will close and liquidate the business to pay off the debts. You are only liable for the debt of a corporation if you cosigned or personally guaranteed a debt of the business. Again, you may have to file Chapter 7 yourself to relieve your obligations to the creditor.
If you have questions about whether Chapter 7 is an option for you and your business, contact Dailey Law Offices for a free, thirty-minute consultation today!