What Is a Business Bankruptcy?

By Cara O'Neill, Attorney
Learn about the basics of business bankruptcy.

When many people consider bankruptcy, “personal” or consumer bankruptcy—the type filed by most individuals—comes to mind. However, “business” or non-consumer bankruptcy is available for individuals and businesses who seek help with debt incurred primarily from profit-seeking business endeavors as opposed to consumer purchases for things such as food, clothing, and shelter.

(To learn more, read Should I File a Business Bankruptcy or a Personal Bankruptcy?)

Although a business bankruptcy is an efficient process that can help a financially distressed business get back on its feet—or, when necessary, wind-down in an organized fashion—it can have serious, permanent consequences. A business bankruptcy tends to be more complicated than one filed by an individual consumer—in part because of the significant differences that exist between the two types. For example, here are a few things you should be aware of before you move forward and file on your company’s behalf:

  • a business doesn’t have to meet income qualifications
  • business debt is rarely wiped out (discharged) in a Chapter 7 bankruptcy, and
  • the business entity determines whether the personal assets of the business owners are at risk.

(Find out about the help available to businesses in What Kind of Bankruptcy Can a Business File?)

These are just a few of the many differences between business and consumer bankruptcy. You can learn more by reviewing additional questions and answers in our FAQ section.

Failing to understand these nuances could easily result in an unexpected—and costly—outcome. If you’re contemplating moving forward with a business bankruptcy, you should consult with an attorney. In fact, in some cases, hiring an attorney is a requirement.

(If you’re not sure what to bring to your appointment, read Bankruptcy: Preparing to Meet with a Lawyer.)

Go to the main business bankruptcy FAQ page.

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