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For many years, you’ve successfully operated a small business – for example, a health food store serving a small but loyal community. Now, Whole Foods is building a big store down the street. You know you can’t compete and will probably go out of business. What are your options?
One option might be to file for Chapter 7 bankruptcy. With a Chapter 7 bankruptcy, you cease all operations and go completely out of business. The court appoints a trustee to oversee your case. The trustee will sell your business’ assets and use the money to pay off your business’ debts.
Who can File Chapter 7?
Sole proprietors cannot file for Chapter 7 bankruptcy as a business. In this situation, the debts you accumulate doing business are actually your own personal debts. You can file for Chapter 7 as a person, but not as a business. If your business is a corporation or a partnership, it can file for Chapter 7. The court will sell your company’s equipment and other assets, and it will give the money to your company’s creditors.
Chapter 7 Protection
The sale of your company’s equipment and assets might not raise enough money to pay your creditors all the money your business owes. If you co-signed with your business to get a loan, you might be personally responsible for repaying the money if your business doesn’t. If you think you’ve co-signed for any of your business’ debts, you can file for Chapter 7 protection yourself at the same time your business does. A lawyer can tell you if this strategy might help.
Should your Business File for Chapter 7 or Chapter 11?
A Chapter 7 bankruptcy usually results in the complete dissolution of your business. A Chapter 11 bankruptcy results in the reorganization of a business under court supervision, so the business can continue in operation with the goal of successfully “emerging” from bankruptcy at some point. An attorney can help you decide which option best fits your needs.
Pre Bankruptcy Planning
Talk to a lawyer in advance if you even think your business might have to declare bankruptcy. You need to plan ahead. During the year before you file, you can’t transfer ownership of any of your business equipment or assets. During the three months before you file, you can’t make payments to any of your business’ creditors.
A Business Bankruptcy Lawyer Can Help
The law surrounding business bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.