Closing Business Operations with a Chapter 7 Bankruptcy Filing-Part One
The Personal Implications of a Business Bankruptcy Filing
When your business is failing, and there’s no reasonable expectation of turning things around, you can simply shut your doors, but it won’t put an end to the stress and anxiety you are experiencing. The calls and letters will keep coming, and you may be named as a defendant in legal action to collect the debts of the business. Filing for bankruptcy protection can help you close down your business and minimize creditor harassment in the process. Here’s how it works.
Chapter 7 Liquidation Proceedings
With a bankruptcy, you have the opportunity to permanently discharge certain debts in exchange for allowing the bankruptcy court to sell some of your assets to reimburse your creditors. If you are a sole proprietor or operate your business as a general partnership, you will be personally liable for the debts of your business. Accordingly, if you don’t want creditors of the business to make claims against you personally for the debts of the business, you will need to file a personal Chapter 7 petition, as well as a Chapter 7 petition for your business.
Even if the business is a corporation or Limited Liability Company, very likely you will have personally signed for the business debt. If the business had a “corporate” credit card, you should assume that you, the business owner, signed the credit card applications personally as well.
When you file a bankruptcy petition, you (but not the business if it is a corporation, partnership, LLC or separate legal entity) will immediately be protected by the automatic stay in bankruptcy. The automatic stay prohibits creditors from calling, writing or taking any legal action (such as filing or advancing a lawsuit) to collect the debt from you, other than through the bankruptcy proceeding.
With a personal Chapter 7 bankruptcy filing, you must qualify by submitting to the means test created by the 2005 revisions to the bankruptcy law. This test would not apply if your personal debt obligations are primarily incurred by or for the business. Be prepared to demonstrate this to your attorney and the bankruptcy trustee.
If you want to save the business and keep it operating, a Chapter 11 reorganization is available, or if the business is a sole proprietorship (not an LLC) Chapter 13 might be available. These are more expensive, and careful attention needs to be paid to the cost and risk of failure vs the upside benefit of saving the business. More about that later.
Contact Neuner & Ventura, LLP
At Neuner & Ventura, LLP, we know the personal challenges that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney.
Representing Clients across South Jersey