Chapter 7 is what people are usually referring to when they discuss personal bankruptcies. This allows individuals to essentially walk away from much of their overwhelming debt. This form of bankruptcy is typically associated with personal debt. However, partnerships, limited liability companies and corporations may file Chapter 7 as well. A corporate Chapter 7 bankruptcy operates a bit differently from personal filings. Yet, it does enable you to liquidate your business and settle its debts.
Why Choose Corporate Chapter 7 Bankruptcy
Bear in mind that your corporation is a separate entity. Unless you have taken specific steps to make yourself responsible for loans and other business obligations, your corporation is liable for its own debt. Therefore, the business is the entity that files.
This type of bankruptcy is a viable option when your company is going out of business. Once you file, a bankruptcy trustee is responsible for liquidating the corporation. He sells off the corporate assets and uses the proceeds to pay its creditors. There are no exemptions in a corporate chapter 7 bankruptcy as there are in personal cases. However, once the trustee has completely liquidated the company and paid off as much debt as possible, there is no remaining debt obligation. This is the case even if the sales proceeds are insufficient to cover all of the business debt.
The biggest advantage of filing corporate chapter 7 bankruptcy, rather than negotiate asset sales and dissolve the corporation on your own, is time and effort. The trustee oversees the orderly dissolution of the business, freeing you and other corporation officers to pursue other business interests or new employment. Another benefit is to avoid an impending creditor levy or lien against assets that the courts may use to pay debts where you are personally liable.
If you cosigned for corporate debts, put up personal assets as collateral or guaranteed corporate loans, you are personally liable for those debts. Hence, creditors can come after you if the bankruptcy does not pay them. In this situation you should also file a personal chapter 7 bankruptcy to discharge those debts.
You must have a lawyer to file a corporate chapter 7 bankruptcy. Contact the Law Offices of Douglas Jacobson, LLC for experienced representation in chapter 7 for business owners.