If your business is struggling and you are personally on the hook for your business debts you should consult a bankruptcy attorney to learn about what options may be available to you. Often times if a debtor has a business that is struggling, they have done some research on filing for bankruptcy and believe that their business needs to file for chapter 7 bankruptcy so that the business will not be liable for all of the debt the business owes to creditors. As bankruptcy professionals will tell you that it is not always a debtors best choice to have the business file for bankruptcy, rather than the individual debtors.
For most debtors who own a small business, filing a chapter 7 bankruptcy on behalf of a business makes little to no sense at all. A chapter 7 bankruptcy may allow a debtor to discharge most if not all of their unsecured debt such as credit cards and personal or small business loans that have been personally guaranteed by a debtor. If a debtor files for bankruptcy only for the business, then the creditor may come after the debtors who guaranteed any loans. Most business don’t have any assets that that are owned free and clear, which means they have no equity. If the business ceases operation, the bank will reposes what they can, but if there is still a debt owed by the business, creditors will seek compensation from whomever guaranteed the loan, which means you may be personally liable. If you file an individual chapter 7 bankruptcy you may discharge your liability on any small business debt that you may owe.
A chapter 7 bankruptcy for a business serves the purpose to help wind up a business and have a bankruptcy trustee dissolve all assets that a business may own. Section 727(a)(1) of the United States Bankruptcy Code says that “The court shall grant the debtor a discharge, unless the debtor is not an individual.” Since businesses is not considered an individual, it cannot receive a Chapter 7 discharge. Therefore the only way to discharge liability would be to file a personal chapter 7 bankruptcy to discharge personal liability of a debt.
If you have additional questions about you or your business should consider filing for bankruptcy, contact Symmes Law Group today at 206-682-7975