Business Bankruptcy

Who?

Many small business owners are currently considering filing for Chapter 7 Business Bankruptcy because they are overwhelmed with debt. The worldwide recession that occurred in 2008 left many business owners in a precarious position. Factors such as massive reduction is sales, reduced lines of credit, higher interest rates, cuts by business customers and increased competition – have resulted in skyrocketing numbers of businesses filing for bankruptcy.

As long as your business is a corporation or a LLC (Limited Liability corporation), you are only responsible for business debts if they were personally signed for or guaranteed by you. Once this is not the case, then your limited liability company or corporation should file their own business bankruptcy case to discharge their debts.

Why?

Small business owners would consider bankruptcy because:

  • Business debts have grown to a size that makes repayment impossible
  • Expensive equipment, vehicle or commercial leases, prevent them from running a profitable business
  • Constant harassment from bill collectors and other creditors
  • A business lawsuit with a upcoming judgment that is beyond their ability to pay
  • They want to stop a foreclosure, repossession or a garnishment on wages
  • Removing the load of business debt so they can focus on paying their mortgage or car loan

What is a Chapter 7 Business Bankruptcy?

Chapter 7 Business bankruptcy is the process whereby business assets are liquidated because the business is unable to pay its debts. With a Chapter 7 Bankruptcy case, a trustee is granted the oversight of the sale of all unexempt business assets which are then paid to meet creditor obligations. Generally under a Chapter 7 Bankruptcy the company ceases all operations and the company is liquidated, that is it goes out of business completely and all its assets are sold to pay existing debts.  However, businesses with little to no assets, equity, or profit may not have to cease operation nor be liquidated.

The bankruptcy process begins with the debtor making a petition. This petition will include a list of all creditors and the amounts owing to them as well as the business financial statements. The court will then appoint a trustee. This trustee is given the power to examine the financial records of the business. This process can take some time which may result in the temporary closure of the business until the value of any assets and inventory has been determined. Depending on the size of the organization, this period of business closure could last for a few months or longer. Service related businesses or those without inventory, machinery, assets, equity, or profit may be able to continue uninterrupted. A series of meetings then follow with the creditors to discuss their claims and determining how much each creditor will receive on their claim. The trustee will then liquidate all business assets and distributes the money to the creditors based on the priority assigned to the debt according to the bankruptcy laws.

For larger companies entering Chapter 7 bankruptcy, an entire division of the company could be sold as is to other companies during the process of liquidation leading to the loss of employee jobs.

For companies entering Chapter 7 bankruptcy, there is no bankruptcy discharge, instead the business is dissolved. Once all the assets of the business have been distributed then the case is closed. The debts will in principle still exist until the appropriate statute of limitations expires.

Our free consultations allow you to start with the best legal advice we can offer to help guide you to your best choice. We want you to make the most informed and educated decision on debt relief and feel confident in that decision, whether it is bankruptcy or an alternative to bankruptcy.  We want you to know that your best interest is our concern. Let us assist you.

Call Kurt G. Larsen at 312-909-1128 or email us today.