Chapter 7 Bankruptcy and Business Debt
Many business owners are confused on whether a personal bankruptcy filing
has the ability to wipe out business-related debt. In many cases, this
is possible depending on the type of debt and whether you are indeed personally
liable for the debt. The way your business is structured may also affect
your ability to obtain a discharge.
Chapter 7 bankruptcy can discharge common types of business debt similar to debt included in
a personal Chapter 7 bankruptcy filing. These debts include medical bills,
credit card bills, and judgments or lawsuits. Personal loans, promissory
notes, obligations under contracts or lease agreements completed by a
sole proprietor may qualify for discharge. Other unsecured debt obligations
owed by a sole proprietor such as accountant, professional or supplier
fees may be included for elimination.
If you have secured debt (property that is considered collateral) and file
bankruptcy they are handled differently. If the secured debt has a deficiency
(meaning you owe more on the outstanding balance than what the collateral
is worth), the difference may qualify for a discharge. Keep in mind, the
creditor can repossess the collateral if payments are in default.
The way your business is structured may help determine how business debt
is discharged. If the debt is owed by the LLC (limited liability corporation)
or corporation, the creditor may pursue the business for payment. In this
case, the debt may be handled differently. To learn whether your business
debt can be discharged in bankruptcy, discuss your situation with an experienced