Your Business And Chapter 7
Anyone, including businesses, can file for chapter 7 bankruptcy.
The last couple of years have seen worldwide economic turmoil in which running a business has become increasingly difficult. By definition, being in business means taking risks, and the bigger the risks the greater the rewards.
We have recently witnessed one of the biggest financial crashes of modern times, which has caught many businesses and individuals out, with devastating results. Whilst some sectors of the economy have been saved by government intervention, many have not, forcing many individuals and businesses into bankruptcy.
85% of individuals seeking bankruptcy file under chapter 7 making it the most popular form of bankruptcy. This involves having all their assets liquidated, but allows them to emerge debt free. It’s not always the best path for a business however.
This is because once the assets are sold; the business is a business on paper only, with no means of trading.
Any entity considering filing for any type of bankruptcy, should spend money on a good lawyer who can advise them on the correct action to take. It’s very important to file under the appropriate chapter.
What chapter 7 does, is once filed, allows what is called “automatic stay”. This means that creditors may no longer contact the owner or any employee of the company seeking debt repayment. It puts an end to harassing phone calls and letters. Everything has to be dealt with through the court appointed trustee.
The trustee also assumes control of the company, and the management team are relieved from their positions. The trustee then has the job of liquidating the assets and distributing the proceeds amongst the creditors. There are 6 tiers of preferential payment, with the first tier being paid in full first, then the second etc.
The primary concern of the business filing chapter 7 bankruptcy, is to retain exempt property and ensure that as much debt as possible is written off.
With no assets left, obviously the business can no longer trade. Chapter 7 represents the end of the line for any business. However, it may be that the owners of the business do not want to throw in the towel. This is why it is so important to hire a lawyer to advise.
Taking professional advice may result in finding that they could in fact stay in business by filing chapter 11 for example. This involves a legally enforceable repayment plan, where the creditors have their existing financial arrangements altered slightly, effectively giving the business time to catch up. This is only allowable where the financial situation allows; in other words if the company has been through a bad patch but the order books are now full, it may be that a rearrangement of debt will allow the company to pay its debt and then continue trading into the future.
When economic situations are difficult you can suddenly find that what were formally manageable levels of debt are now no longer sustainable. You may start to seriously think about declaring yourself bankrupt. For more free advice visit www.declaringyourselfbankrupt.net.
