• Redd Law, PLC

Chapter 7 Bankruptcy for Small Businesses

Corporations, limited liability companies, and partnerships are allowed to file a chapter 7 bankruptcy petition. Like individuals, business entities receive protection from creditors in bankruptcy. However, a chapter 7 bankruptcy provides a limited benefit to business debtors.

Individual chapter 7 filers can keep a certain amount of property that they own. However, businesses that file bankruptcy cannot keep anything. A chapter 7 trustee will sell all of the business property and distribute any proceeds to the creditors. The chapter 7 trustee also has the right to operate the business until all of its assets are liquidated. Therefore, a chapter 7 bankruptcy would not be the best option for a business owner who wants to maintain control of the business.

Generally, a business chapter 7 bankruptcy should only be considered if the business is going to close. That’s because businesses don’t receive a discharge or cancellation of debt in a chapter 7. Even after the trustee takes all of the businesses property, the business still technically owes money to its creditors. Nonetheless, if the business closes and there are no more assets, the creditors won’t be able to be paid additional money anyway.

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