When a Business Files Chapter 7 Bankruptcy
When a business decides that they can no longer pay their debts and must file bankruptcy, the process is different than if they were an individual.
Here's what you need to know:
- Once you decide to place your business in Chapter 7 bankruptcy , you are deciding that the business will no longer exist.
- You will need to declare all of the business' liabilities and assets when you file the bankruptcy petition. Even though the business is being liquidated, the listing of assets and liabilities must be accurate.
- Within a day or two of filing Chapter 7 bankruptcy for your business, a bankruptcy trustee will be appointed to your case. It is the responsibility of the bankruptcy trustee to make sure creditors are repaid if possible, using the assets of the business.
- The business owner is responsible for surrendering all of the business property to the bankruptcy trustee. The property includes equipment, furniture, vehicles, inventory and receivables. The bankruptcy trustee will return appropriate property to secured lenders and liquidate other assets so that priority creditors and if possible, unsecured creditors can be repaid.
- The liquidation of a business' assets in bankruptcy can take weeks or even months. The bankruptcy trustee is responsible for auctioning off assets which have value and distributing the proceeds to the administrative estate, priority creditor and then unsecured creditors. Even if there is not enough money to pay off creditors, the business will not receive a discharge of their debts. The business will simply no longer exist because it was liquidated in bankruptcy. However, if the owner of the business personally guaranteed debts, his personal assets may be at risk if unpaid creditors decide to pursue him for payment.