Chapter 7 Bankruptcy for Business
A business may file a Chapter 7 Bankruptcy when it cannot continue to maintain its ongoing operations. This may manifest itself by an inability to meet payroll on a regular basis, lack of working capital to buy inventory or necessary supplies, lack of revenue needed to pay vendors, creditor and landlords. If the business does not have an action plan to become solvent, such as an outside infusion of capital, then an option may be to close the doors and shut down the business through a Chapter 7 Bankruptcy.
A Chapter 7 Bankruptcy for a business is a liquidation of any and all business assets. The proceeds from the liquidation are disbursed to the business’ creditors proportionately. A business which files for Chapter 7 Bankruptcy cannot continue to operate. The purpose of this Chapter of Bankruptcy is to wound up the business affairs and provide a distribution to creditors.
Chapter 7 Bankruptcy allows a Business to address debts, such as:
- Credit card debts
- Collection accounts
- Business loans
- Contractual obligations including damages
- Rental agreements including commercial properties
- Leasing agreements
- Deficiencies resulting from repossessions
- Deficiencies resulting from foreclosure
- Debts rendered into judgments
The filing of bankruptcy case stops all collection efforts, irrespective of the stage. The Bankruptcy automatic stay comes into effect immediately upon filing of the bankruptcy case. This stay is very powerful and it stops creditors from contacting you by phone or in writing. The stay also stops creditors from pursuing lawsuits, foreclosures, seizing funds from business bank account and repossessing vehicles.
Even if a judgment has been entered against the Business, the Business may still file for Bankruptcy and stop any further collection effort.Personal Guarantees on Business Debt
Many creditors require an individual, usually an officer of the corporation, to personal guarantee the debt or contractual obligation incurred by a business. For all intents and purposes, you become a co-signor on the business’ debts.
In the event the business does not meet its obligations, the creditor may seek payment from you personally. To that effect, the creditor may sue you and seek to collect from your wages and assets, even if unrelated to the corporation or business associated with the debt.
Even if the Business files for Chapter 7 relief, you will continue to be responsible for any debts subject to a personal guarantee. Depending on the size of the debts, you may have to consider filing your own individual Chapter 7 Bankruptcy.
Since a Corporation, LLC, S-Corporation are separate and distinct entities, the filing of a bankruptcy by the business will not shield you from creditors who hold personal guarantee claims against you. As a result, you may have to evaluate whether to file an individual bankruptcy case as well.
Keep in mind that every one’s situation is different and the best way to determine the impact and effect of personal guarantees on business debt is to have a consultation with an attorney. Our initial consultation is free of charge and it will provide you with an opportunity to sit with an experienced attorney to discuss your circumstances in detail and the choices available to you.
Please contact us for your FREE consultation at (954) 255-2022 or complete our online form. We offer late appointments on weekdays and we are open on Saturdays to better serve you.