Running a business is a difficult venture, and even with support systems in place, the enterprise can go wrong. Whether it’s sudden or gradual, debts can overcome a business income and leave no other option than some form of debt relief. Debt relief options vary, but the most effective solution for the long term is to file for bankruptcy. Corporations, LLCs, and other businesses that are not sole proprietorships or partnerships can file for two forms of bankruptcy: Chapter 11 (reorganization bankruptcy) or Chapter 7 (liquidation bankruptcy). Individuals and businesses alike can find guidance when filing for Chapter 7 bankruptcy in Mankato, MN, with the help of Behm Law Group Ltd.’s attorneys.
Chapter 7 works similarly for individuals and businesses, but with slight differences. The primary function of Chapter 7 is to liquidate the filer’s assets in exchange for debt discharge. Individual filers may claim exemption allowances to protect certain properties (e.g., the homestead exemption protects the filer’s home from liquidation), but businesses have no such exemptions to claim.
How Chapter 7 Bankruptcy Works
Corporations, LLCs, and business formats that are not tied to the owner’s personal debts can petition for Chapter 7 to discharge all of their business debt. Compared to an individual consumer Chapter 7 bankruptcy case, business bankruptcies are fairly cut and dry.
Filers work with an attorney to build their case, including all the required documents and financial records. When the petition is submitted to the court and all necessary bankruptcy fees are paid, the court appoints a trustee to handle the liquidation of the business assets. Properties, equipment, business accounts, and any other components of the bankruptcy estate are sold. Creditors are paid with the value of those sales, and the trustee takes his or her commission based on a percentage of the values received.
When the assets are liquidated and the trustee distributes the sale proceeds among the creditors of the business, the court will then discharge unsecured business debts, including credit card debt, utilities owed, lease obligations, loans, and other business debts. When this process is complete, the business filing is shut down, effectively ending operations.
Chapter 7 bankruptcy is a highly effective debt relief process for businesses, though it’s undeniable that your company will be closed down. Many large U.S. businesses, such as Lehman Brothers in 2008, have used Chapter 7 to rid themselves of debt and shut down. Lehman Brothers filed with $691 billion in assets and $619 billion in debt. This was a case that affected hundreds of employees, but for the long term, was a positive solution for all involved. In many cases, after the bankruptcy process is completed, one can create a brand new business operation that does the same work as the business that filed for bankruptcy relief and one can operate much more efficiently and smoothly without all of the debts that encumbered the former business.
If your business is struggling to keep the lights on and hasn’t had success negotiating with creditors or finding other ways of resolving debt, filing for Chapter 7 bankruptcy may be the final option. Filing will release you from all your business debt effectively, though it will just as effectively close down your business operations.
To learn more about filing for Chapter 7 bankruptcy in Mankato, MN, as a business or individual, contact Behm Law Group Ltd. at (507) 387-7200 today.