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Is Chapter 7 bankruptcy the right choice for your business?

by | Mar 2, 2017 | Chapter 7

To a small business owner who is facing a debt spiral that does not seem to have a solution, it can be difficult to know just what to do. Bankruptcy is always there as an option, but the way that it works can cause distress to many people, especially when they do not understand the process ahead of time. Questions about losing homes and other property are quite common, and when bankruptcy is complicated by business ownership it gets to be even more stressful. Here is what a person needs to understand about it.

Which form of bankruptcy to file


There are several different forms of bankruptcy in the United States:

  • Chapter 7 bankruptcy, which typically involves the sale of assets except for a limited list that includes a personal vehicle and household furnishings and is open to businesses and individuals
  • Chapter 11 bankruptcy, which allows businesses to renegotiate debts, either by adjusting the amount of the debt or the time for repayment
  • Chapter 13 bankruptcy, which allows individuals to preserve their assets while entering into a payment plan designed to help them overcome their debts

Chapter 11 and Chapter 13 depend on the debt spiral being in a place where it is possible for payment to happen with adjustments. If a company or individual needs to completely discharge debts because they are unable to pay, though, Chapter 7 is the option to go with.

What to understand about Chapter 7 bankruptcy


If a person owns a home or other property, Chapter 7 bankruptcy will require the liquidation of those assets as part of the process of discharging the debt. Afterward, the debts will be totally discharged, which makes Chapter 7 faster than the other forms of bankruptcy, which require the payment period be completed before debts are discharged.

It is also worth noting that there is a test to determine eligibility for Chapter 7. If filing as an individual, the court may automatically presume that the filing is abusive if the individual’s income is over about $12,000 per month or if it is more than one-quarter of the total debt.

Filing for bankruptcy as an entrepreneur


Bankruptcy for those who own their own businesses can be complex, which is why it is a good idea to talk to a bankruptcy attorney before taking any action. The right attorney will be able to provide advice about the various options and guide the process to help the filing go through properly by avoiding the pitfalls that cause the court to convert it to another form of bankruptcy or dismiss it.


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