If your small business has fallen into significant debt, you may want to file for Chapter 7 Business Bankruptcy, so these expenses can be discharged. If you are like other business owners, your personal assets may be tied to your business property. If you have accrued serious debt, and the income of your business can’t meet your financial obligations, Chapter 7 bankruptcy may be a helpful solution. 

Chapter 7 bankruptcy is usually an option if there are business assets that can be liquidated. Otherwise, the owner of the business may seek debt relief through Chapter 7 bankruptcy to avoid actions taken against them by creditors. 

What is Chapter 7 Business Bankruptcy?

In Chapter 7 bankruptcy, the assets of your business will be taken over by a trustee who will then sell them and use the proceeds of the sale to pay back creditors. This will be done based on the order of risk. After a Chapter 7 bankruptcy filing, your creditors should stop collection activities including wage garnishments and lawsuits. After your case is discharged, you won’t be liable for the discharged debts. 

When to File for Bankruptcy

Filing for business bankruptcy is complex, so you must work with a lawyer who can handle such matters and possible litigation that may arise. Often, it is a smart idea to file for Chapter business bankruptcy if you own business assets that can be liquidated. If no assets are available, your attorney may advise you not to renew the corporate status of your corporation. If your personal assets are comingled with your business entity, you should file Chapter 7 bankruptcy as an individual and Chapter 7 business bankruptcy simultaneously. Your lawyer can help you do this efficiently. Filing such bankruptcies simultaneously can save you time.

Personal Liability for Debts Accrued by a Business

Through Chapter 7 bankruptcy, people with personal liability for debts accumulated by a business may no longer be responsible for these debts. This is possible after they have sold off non-exempt assets in order to pay creditors. Often, individuals should meet some income requirements to be eligible, but they can avoid the means test if their business debts are bigger than their personal debts. 

Personal liability for business debts depends on the structure of the business and whether the individual agreed to take responsibility for the business debts. Often, sole proprietors and partners in a partnership are responsible for the debts accumulated by their businesses.