Business Bankruptcy: Understanding Chapter 7 Bankruptcy
Contrary to what is commonly believed, bankruptcy isn’t a one-size-fits-all proposition. In fact, you’ve likely heard of different “chapters” of bankruptcy before on the news or in business publications. And while bankruptcy proceedings can be a method for shutting down operations, bankruptcy can also help protect a business from being forced to close simply because of bad debts. This duality is one of the most interesting characteristics of Chapter 7 Bankruptcy. Read on to learn more about Chapter 7 bankruptcy and how we can assist you with understanding business bankruptcy in Southfield.
When a business files for Chapter 7, most collection activities are immediately suspended. A trustee is appointed and takes over the responsibility of paying off creditors through the sale of assets. In sole proprietorships, some assets like necessary equipment can be considered exempt if the business intends to remain open, allowing the business owner to discharge debts while still being able to produce income.
For partnerships, corporations, and LLCs, filing Chapter 7 results in full liquidation of the business and all of its assets. The benefit, of course, is that partners and owners are not personally responsible for payment of debts, other than those that were personally guaranteed by an individual. Even after filing Chapter 7, individual guarantees and debts will still be intact. However, for all debts accrued by the business entity, Chapter 7 will resolve debts through business assets, leaving personal finances untouched. Sometimes, Chapter 7 is used during the dissolution of a partnership or corporation, in which the partners do not wish to continue business operations and debts exceed the company’s available assets. The bankruptcy trustee takes care of all debt resolution and you and/or your partners can focus on more important matters – such as your next business venture.
In order to qualify for Chapter 7, you or your business must meet a certain set of criteria. These include:
- Maximum income levels and previous bankruptcy filings (Chapter 7 cannot have been filed within the past 8 years, Chapter 13 bankruptcy cannot have been discharged within the past 4 years, and, with some exceptions, there can be no bankruptcy proceedings that were dismissed within the past 180 days).
- In some cases, there may also be a “means” test designed to determine if sufficient assets exist for paying creditors through a different method or another bankruptcy type.
While the qualification process can be frustrating, it is helpful to understand that the standards are intended to prevent the defrauding of creditors who are likely to receive less than the full payment of their debts in bankruptcy proceedings. With an experienced attorney on your side, however, the qualification process is actually quite simple, end results can be expedited, and you can get back to a more normal and better life or business. If you are interested in learning more about Chapter 7 bankruptcy in Southfield, contact our friendly team for assistance. We look forward to helping your business find the best solution for moving forward.