When a company is consumed by debts that aren’t payable, there are a few types of bankruptcy that can help owners avoid further financial harm. Of these options, one of the most common strategies for small business owners is to file for Chapter 7 bankruptcy. To shed more light on how this legal process works and how it can clear commercial debts, here are a few important points to know about Chapter 7 as a small company.

How Does Chapter 7 Bankruptcy Resolve Business Debts?

Reserved for both individuals and business entities, Chapter 7 bankruptcy offers a legal and efficient way to mitigate unpaid debts that cannot reasonably be collected.

If you own a small business as an individual—such as in a sole proprietorship—filing for Chapter 7 will eliminate both personal and company-related debts that you’re responsible for.  Typically, a trustee will oversee the liquidation of business assets—such as product, real estate, and equipment—to recoup funds and pay off creditors.

When corporations or LLCs file for Chapter 7, business assets will still be liquidated to reduce debts. However, no individual owners will be able to include personal debts in the process.

Can a Business Stay Open After Filing for Chapter 7?

In most cases, Chapter 7 bankruptcy will eliminate all or most business assets, making it difficult for the company to remain open. However, if you provide a service-oriented business with few tangible assets, you may still have all the resources necessary to stay in operation.

If you want to keep the business open, it may be in your better interest to file a Chapter 11 bankruptcy. This type of bankruptcy allows businesses to retain some assets and remain operational.

What Benefits Does Chapter 7 Offer Small Businesses?

For sole proprietors, Chapter 7 bankruptcy makes it easier to eliminate both personal and business debts, which can lead to better long-term financial outcomes. Sole proprietors may also be able to protect some personal assets from being seized for liquidation.

No matter what the business structure, Chapter 7 also allows owners to pass the responsibility of liquidation to a named trustee. This transfer of responsibility enables you to move on from the matter without having to worry about legal issues holding you up for years.  

While Chapter 7 bankruptcy can resolve many financial concerns of a small business, filing can still be a long and complex process. But with help from the attorneys at the Law Offices of Harry G. Lasser in Cookeville, TN, you can navigate every step with confidence. Specializing in bankruptcy law, these professionals will review your company’s finances to determine if you qualify. After determining which approach is best for you, the legal team will provide in-depth support from filing to closing. Visit the law office online to learn more about these services or call (931) 372-9988 to schedule a consultation with an attorney.