Find Out When Chapter 7 Can Be Beneficial to Your Business:
If your small business is struggling with debt, filing for Chapter 7 bankruptcy might help. Chapter 7 bankruptcy won’t help every small business owner, so find out when it might and might not work for your business, and when other options might make more sense.
If you’re considering filing for bankruptcy because your small business is drowning in debt, you’re not alone. The economic downturn that began in 2008 took many small business owners by surprise. For a variety of reasons — from reduced consumer spending to cutthroat competition, cutbacks by business customers, and shrinking (or disappearing) lines of credit — the number of bankruptcies filed by small business owners has skyrocketed.
Reasons to File for Bankruptcy
- Your business debts have grown so large that you’ll never be able to pay them back
- You want to get out of an expensive commercial lease, sales contract, or vehicle or equipment lease
- You want creditors and bill collectors to stop harassing you and your employees
- Your business lost a lawsuit and was ordered to pay a judgment that is beyond your means
- You racked up a lot of business debt and need to lighten the load so you can pay your living expenses
- You want to stop a vehicle repossession, garnishment, or foreclosure
- You want to remove a lien from your home or get out of your mortgage without owing a deficiency
How does Chapter 7 Bankruptcy Help?
Chapter 7 personal bankruptcy could be the right solution to many of these problems. But it won’t be the answer for every small business owner, for two main reasons:
- Chapter 7 personal bankruptcy covers only debts for which you are personally liable. If your business is a sole proprietorship or general partnership, you are personally liable for all of your business’s debts, and you can get them wiped out in Chapter 7 personal bankruptcy.
- If your business is a separate legal entity (e.g., a corporation or limited liability company (LLC) you are personally liable for the business’s debts only if you personally signed for them or guaranteed them. Otherwise, the corporation or LLC is responsible for its own debts and must file its own business bankruptcy case to discharge them.
- You may have to close your business if you file for Chapter 7 personal bankruptcy. If you’ve already decided that you want out of your business, this won’t be an important consideration. If not, realize that as part of the bankruptcy process, the bankruptcy court may want to close your business down, at least temporarily.
- Many business owners, especially those who own service businesses with few assets, may be able to keep their businesses open during Chapter 7. Many business owners close down, use Chapter 7 bankruptcy to get out from under their debts, and then immediately start a similar business.
Filing for bankruptcy can even be an important step toward future business success.
Chapter 7 personal bankruptcy gives small business debtors the opportunity to wipe out some or all of their debt while protecting their personal assets as much as possible. In fact, many bankruptcy filers go on to start another business and become successful the second or third time around.
If you would like more information about Chapter 7 bankruptcy and business debts, contact the Law Office of Howard Tagg and schedule a free consultation: (903) 581-9961.