July 24, 2017

Chapter 7 Bankruptcy: Businesses & Individuals

The word “bankruptcy” is heard everywhere, from coffee shops to church bazaars and the evening news. It’s clear to me that, despite this general knowledge of bankruptcy, few people understand what it means to file for protection under Chapter 7, Chapter 11 or Chapter 13.

Chapter 7 is a liquidating bankruptcy.  It is normally utilized to obtain a “fresh start” for an individual debtor, and, far less often, to wind down the affairs of a  business debtor.

Chapter 7 for individuals

In many cases, a Chapter 7 bankruptcy allows an individual debtor to wipe away all of his or her debts without losing any assets.  We can advise you as to whether you, as an individual, would qualify for a Chapter 7 bankruptcy; and if so, what debts of yours would go away in a Chapter 7 bankruptcy; and whether you would have to give up any property as part of the bankruptcy.

Chapter 7 for businesses

We can also help a troubled business determine whether a Chapter 7 bankruptcy would be appropriate for the business. We usually find that small businesses — those owned by an individual or partners — must be evaluated for bankruptcy protection along with their owners. Why? Owners so often personally guarantee loans for their companies —   by taking out second mortgages or pledging collateral — that what the courts view as “business” debt versus “personal” debt differs from the owners’ understanding. Often it is the business owner that needs bankruptcy protection.

The best place to start evaluating bankruptcy is in what’s called a “bankruptcy counseling” session. Many attorneys will see potential clients free of charge for such an evaluation, and only bill for that time if retained.

“This information is general and thus incomplete, and the reader should seek legal counsel for specific legal problems or questions.”