Question: My business has been failing and losing money fast. A friend suggested I file for Chapter 7 bankruptcy. What exactly is Chapter 7 bankruptcy, how do I qualify for it, and how will it effect my business?
Response: Your first concern should be to contact an attorney experienced in handling bankruptcy planning and proceedings to ensure that the best plan to protect yourself against business creditors. Although your friend may have knowledge about the procedures and rules, it would be wise to seek advise on all the potential avenues.
That said, Chapter 7 bankruptcy is fairly different from the other methods of filing bankruptcy. Generally speaking, one of the main reasons for filling Chapter 7 is that there is no plan for repayment made. Rather, the court appoints a bankruptcy trustee to gather all the remaining nonexempt assets of the business, and attempt to maximize their liquidation value. The main effect on your business is that under Chapter 7, your business will not be able to continue as the assets are collected and you would not be able to generate money with your business.
To qualify for Chapter 7, the entity filing can be an individual, a partnership, corporation or other business entity. In determining qualification, the debtor's "current monthly income" is compared to the state median, and if debtor’s income is more, the law application of a "means test" to determine whether the chapter 7 filing is presumptively abusive.
Also, in general terms, the Chapter 7 filing seeks to make a clean slate for an individual by allowing discharges of debts in many creditor situations. However, discharges are available only to individuals, and not to partnerships or corporations.
Answered by Bert Gonzalez
Disclaimer: This site does not provide legal advice and users of this site should not interpret any of the information presented here as legal advice. The information provided merely conveys general information related to commonly asked legal questions. We are not a law firm and the employees responding to questions are not acting as your legal attorney. You should ultimately consult with a Lawyer for your case.