As a small business owner who has insurmountable debt, you are considering the drastic step of filing bankruptcy. You have done some research online, and Chapter 7 seems the best fit for your particular circumstances. Of course, you have many questions. The biggest is this: Will you be able to keep your business after you declare Chapter 7 bankruptcy?
How Chapter 7 works
Once you decide to file Chapter 7, you will file a petition with the bankruptcy court in your jurisdiction. The court will enact an automatic stay, which prevents creditors from taking further action against you. A trustee will handle your case, determining the property that you can keep. There are exemptions for many business owners that allow them to keep their tools of the trade. If you own a restaurant, for example, the trustee may allow you to keep cooking ranges, ovens, refrigerators and other necessities.
But what about my business?
Whether you can keep your business afloat depends on the type of Chapter 7 case that you file. If you are the sole proprietor, you can file a personal bankruptcy case. This would allow you to keep your business. But if it is run as a partnership, LLC or corporation, you must file a bankruptcy petition for your business. In this case, the trustee can liquidate company property instead of your personal property, and your company will cease to exist.
For business owners who are going bankrupt, this can be difficult to hear. If you care deeply about your business, the thought of liquidating it may be incredibly painful. Bankruptcy attorneys often work with owners to determine the course of action that has the best chance of keeping the business afloat. With legal counsel, you can decide whether Chapter 7 is the right move for you and your company.