No one opens a business expecting that it will fail, but the data can be grim. According to the U.S. Bureau of Labor Statistics, about 20% of small businesses fail within their first year of operations; by year five, roughly 50% have shuttered.
When your small business fails, you can be on the hook for thousands of dollars – or worse, saddled with insurmountable debt. Are you stuck with that financial burden forever?
Whether you’re a business owner who has decided to close up shop or an individual whose debts have simply become unmanageable, your liabilities do not have to hang over your head for the rest of your life.
Bankruptcy is designed to help people and businesses resolve their debts so they can start anew.
What is Chapter 7 Bankruptcy?
There are several different forms of bankruptcy available in the United States. Chapters 7 and 13 are available for use by individuals and businesses, and Chapter 11 is available only to businesses.
Chapter 7 is sometimes referred to as “straight” bankruptcy. Under Chapter 7, a portion of your assets will be sold (or “liquidated”) in order to repay your creditors. The vast majority of Chapter 7 filings are “no asset” cases, meaning you do not surrender anything to the state. Even if you have to turn over some belongings, you only have to give over nonexempt properties.
What Happens When I File?
Upon receipt of your filing, the courts place an automatic, temporary stay on your debts. Creditors can longer collect payments, garnish your wages, foreclose on or evict you from your home, repossess property, or turn off your utilities.
A trustee will also be assigned to your case. The court-appointed trustee’s will review your finances and oversee your Chapter 7 bankruptcy.
After reviewing your financial information and determining what (if any) propertied should be liquidated, your trustee will arrange a meeting of creditors (also known as a 341 hearing).
At this meeting, the trustee will review your finances on the record. Despite the name, creditors usually do not attend these hearings. They are generally short – under 15 minutes long.
Business Filings
Filing for Chapter 7 bankruptcy will close your business, so this option is best for business owners who have decided they no longer wish to run their company and do not want to pass it along to another owner.
Corporations and LLCs can both use Chapter 7 to discharge their debts, though these cases can be complicated. The benefit to filing Chapter 7 is the transparency of the process.
Occasionally, former business owners have difficulty proving their company has closed, and creditors will continue to hassle them.
A Chapter 7 filing shows your lenders that you are definitively out of business.
Make the Bankruptcy System Work for You
People often think of “bankruptcy” as a dirty or shameful word, but this could not be further from the truth. Bankruptcy is a legitimate way to clear your debts and begin again with a clean slate.
Business owners, especially, should not be afraid to use these tools. As the U.S. Bureau of Labor Statistics says, a closed business is not an anomaly. Bankruptcy does not equal failure; it allows former business owners to move on with their lives and try something new.
Mission Hills and Riverside Bankruptcy Lawyer
If you believe bankruptcy could benefit you, contact the Certified Bankruptcy Specialists at the Law Offices of Larry D. Simons right now. Filing for bankruptcy without a lawyer’s help is a gargantuan task. Your case could be dismissed due to technicalities or small errors. Working with a bankruptcy attorney ensures that your filings will be accurate, and you have the weight of an expert behind your case.
- Buy Now, Pay Later and Bankruptcy: What You Need to Know - May 13, 2022
- Who Can Prepare a Bankruptcy Petition in California? - March 22, 2022
- Protecting Your Mission Hills Property in Chapter 7 Bankruptcy - February 12, 2022
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