It is never easy making the decision to close a business. For small, family-owned and operated businesses, it is particularly difficult because the business is not just a “job” it is often an integral element of the family dynamic. Many family businesses are passed down from generation to generation and all of the family members have worked in the business at one time or another. Closing the business is like losing a family member but sometimes the owner has no other choice but to close the doors and file a business bankruptcy.
Why Does a Chapter 7 Business Bankruptcy End the Business?
When an individual files a Chapter 7 bankruptcy case, the individual is gaining a fresh start to recover financially and move forward. The debtor can use bankruptcy exemptions to protect the equity in various assets from his creditors and the trustee. The individual debtor will continue to work and rebuild his finances. However, when a business files a Chapter 7 business bankruptcy, the business ceases operation and closes its door for several reasons.
Businesses do not have the ability to use bankruptcy exemptions to protect assets. Any assets secured by liens will be returned to the secured creditor as payment for the debt owed by the business. The other assets that are free and clear from liens will be seized by the trustee to be liquidated. The trustee will use the funds received from the liquidation to pay the unsecured creditors on a pro-rata basis. Therefore, the business loses all of its assets once it files a business bankruptcy and has nothing to operate with after the business bankruptcy is completed.
A business bankruptcy does not discharge the debts owed by the business. When an individual files bankruptcy, at the end of the case the debts are discharged and he no longer has a legal responsibility to repay those debts. A business is not entitled to a bankruptcy discharge; therefore, if the business were to remain open at the end of a business bankruptcy, the business would still owe its debts. The inability to pay its debts is why the business had to file a Chapter 7 business bankruptcy so it would not be logical to allow the business to remain open with no means of repaying the debt and no assets with which to operate.
Business Bankruptcy and Co-signed Debt
In many small businesses, the owners co-sign debt for the business. Many do this as a last ditch effort to keep the business operating. Unfortunately, the business bankruptcy does not discharge the co-signer’s legal obligation to repay the debt. Once the business bankruptcy is complete, the creditor is free to pursue all available legal actions to collect the full amount of the debt from the co-signer. If the co-signer is experiencing debt problems, it may be in the owner’s best interest to file an individual bankruptcy case to discharge the co-signed debt as well as any personal debts he may owe.
Contact an Experienced Mount Holly Bankruptcy Attorney
Personal Approach, Professional Service, Affordable Payment Plans
The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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