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Using Chapter 7 Bankruptcy to Discharge Business Debt

Posted By Allmand Law Firm, PLLC || 16-Apr-2013

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 bankruptcy attorney.


Categories: Chapter 7 Bankruptcy
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