Business and Bankruptcy

A debtor in a Chapter 7 can be an individual or a business. If the debtor is a business in a Chapter 7, the business will close. The trustee can sell any remaining assets distributing the funds to the businesses creditors while the rest of the debt is discharged through the bankruptcy. This filing however only takes care of the businesses liability for the debts. What this means is that if you personally guaranteed the loan, the business Chapter 7 does not take away your liability. The creditors of the business will then be able to come after you personally for the debts. To prevent this situation, if a prospective client comes in and wises to file a Chapter 7 for s business, it may be in their best interest to file a Chapter 7 for the business as well as personal Chapter 7. The business bankruptcy takes care of the liability of the business while the personal bankruptcy prevents the businesses creditors from going after the personal guarantor.

A different scenario entirely is when a prospective client comes in and wants to file a personal Chapter 7 bankruptcy but continue to operate their business. If the business is not filing bankruptcy, it can continue to operate. However, depending on the value of the business and its assets, the entire business may not be protected from the trustee selling assets to pay creditors. However, if there are no assets of the business then the debtor can file a personal Chapter 7 and continue operation of their business.

A debtor in a Chapter 13 can only be an individual. That means that a prospective client cannot come in and file Chapter 13 on their business. However, the business may be able to file a Chapter 11 which is an entire different topic. The prospective client, typically the owner of the business, can file a Chapter 13. In this case, the debtor has the option to continue operation of the business as well so long as it is not operating at a loss to the bankruptcy estate. While the business would not be the person/entity filing the Chapter 13, pretty detailed information about the assets, income and expenses, employees, etc. are required. This information is required not only to verify income information as provided on the bankruptcy petition but also to ensure that the creditors that are you be paid through the Chapter 13 would not be negatively impacted by the businesses continued operation.