If your small business is in financial trouble, you may be considering your options in bankruptcy. Whether you’re trying to save your business or simply close it down, a Chapter 7 filing can be beneficial. The first question you’ll need to answer, though, is whether you have personal liability for the debts of the business. If you set up a sole proprietorship or a general partnership, you won’t derive any benefit from discharging the debts of the business in bankruptcy, as you’ll still have personal responsibility for paying them.
Understanding a Chapter 7 Bankruptcy Petition
A Chapter 7 bankruptcy filing, also known as a liquidation proceeding, allows individuals and sole proprietors to discharge certain debts in exchange for the sale of some of your assets. By law, some debts cannot be discharged, such as child support arrearages, student loan payments and most tax debts. Furthermore, you can exempt property from sale under state or federal law (you must choose one or the other).
Once you file for protection, an automatic stay goes into effect, preventing your creditors from contacting you or filing any legal action to collect the debt, other than through the bankruptcy court.
Under the revisions to the bankruptcy laws in 2005, a new provision was added, requiring that debtors seeking to discharge debts under Chapter 7 submit to a means test, proving that they did not have the resources to repay creditors over a three-to-five year period. That test, however, only applies to consumer debts. Accordingly, there’s no requirement, when using Chapter 7 to discharge business debts, that you go through the means test.
Contact Neuner & Ventura, LLP
At Neuner & Ventura, LLP, weknow that the bankruptcy process can be intimidating and confusing. Weoffer a free initial consultation to every client. For an appointment, call our office at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.
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