Chapter 7 Business Bankruptcy Attorney

When it has become clear that a business is no longer financially viable, filing for Chapter 7 bankruptcy is often the best way to wind up operations in an orderly manner. In Chapter 7, the Bankruptcy Court will turn most of the business’s assets over to a bankruptcy trustee who will distribute them to creditors to the extent that is possible. Once the liquidation is complete, the company will be dissolved and its owners will be free to pursue other opportunities.

It is important to note that when a business files for Chapter 7 bankruptcy it does not eliminate any personal obligations its owners may have to pay the business’s debts. This is why most Chapter 7 business bankruptcies are filed by corporations or limited liability companies. When a business is operating as a partnership, the partners are personally liable for the debts of the business, unless it is operating as a limited liability partnership in a state that allows that type of business structure. Therefore, in most cases of partnership bankruptcy the partners will also need to file for Chapter 7 bankruptcy protection. If the business operates a sole proprietorship, filing for personal Chapter 7 bankruptcy will usually wipe out the debts of both the proprietor and the business.

Chapter 7 bankruptcy is most appropriate for a business where the owners and managers see no path to profitability, the company lacks significant assets, and operations need to be wound down. For business owners and managers who believe their company can return to profitability a reorganization under Chapter 11 is usually the better option. Chapter 11 allows the business to continue its operations while restructuring and paying off at least some of its debt to creditors.

The filing of a Chapter 7 bankruptcy case creates a bankruptcy estate that becomes the temporary legal owner of the debtor’s non-exempt property. The United States Bankruptcy Code and many states exempt certain of the debtor’s assets from being placed in the estate. The bankruptcy trustee serves as a representative of the estate and works with the Bankruptcy Court to distribute the bankruptcy estate’s assets to creditors. Those creditors with liens on property in the estate are known as secured creditors, while those without liens are unsecured creditors.

Chapter 7 provides debtors with an automatic stay preventing creditors from taking further collection action against the debtor without the permission of the Bankruptcy Court. The automatic stay is an injunction that is issued immediately against all creditors upon the filing of a bankruptcy petition. An additional benefit of the stay is that the bankruptcy action automatically halts most non-bankruptcy proceedings involving the debtor in other courts.

In cases where there are secured creditors, the debtor needs to tell the court how it wants the collateral to be handled when it files for bankruptcy by filing a statement of intention. The most common method for repaying secured creditors is simply to give the pledged property back to the creditor. If the debtor wants to retain the secured property after the business is liquidated, the debtor has several available options, including redeeming the property by paying the creditor fair market value or entering into an agreement to continue making payments on the debt. The bankruptcy court may discharge the secured debt, but the creditor will still have the right to seize the collateral.

Unsecured creditors do not fare as well as secured creditors because they cannot take the debtor’s property to satisfy debt obligations. Unsecured creditors usually have 90 days after the bankruptcy filing to file their claims with the Bankruptcy Court. Should any assets remain in the estate after the secured creditors have been paid, the trustee may sell any of the debtor’s property that is not subject to a lien, or exempt, and distribute the proceeds to the unsecured creditors in the order dictated by the Bankruptcy Code.

After a Chapter 7 bankruptcy trustee has sold the debtor’s assets and repaid creditors to the extent possible, there is likely to be some remaining unpaid debt owed to the creditors. However, the creditors will be unable to collect because a Chapter 7 proceeding concludes with the dissolution of the debtor, leaving no party from which the creditors can collect.

Each Chapter 7 bankruptcy is unique and businesses need experienced attornies to guide them through the process. The attorneys at Thomas H. Curran Associates specialize in business bankruptcy and are skilled at quickly and efficiently wrapping up the affairs of a struggling business so that the company’s ownership and management are free to move on to new projects.