Chapter 7 Bankruptcy for Businesses Q&A

Chapter 7 bankruptcy is a liquidation bankruptcy. The company stops all business operations, closes up shop, and stops operating as an ongoing concern.  A trustee is appointed by the court to operate the business, or liquidate the assets.  The money derived from the Trustee’s efforts is used to partially satisfy creditors. This is pretty much the bankruptcy of last resort, meaning that you have no way to reorganize under a Chapter 11 filing, and that you are ineligible for a Chapter 13 because of your business being structured as an LLC or corporation.

Q: When should I file for Chapter 7?

A: When you’re unable to operate profitably, and are so far in debt that you are deeply underwater, it’s time to think about Chapter 7 if you can’t come up with a plan or method to keep afloat.

Q: What can chapter 7 do for me?

A: It can get you out of an expensive lease or contract that is siphoning off your money and causing you to lose ground on paying your bills and other obligations. You can stop collections and stay lawsuits that are in progress, or stay a judgement that you won’t be able to pay. You may be able to buy time against a repossession, garnishment, or foreclosure.

Q: How is the money from the liquidation distributed?

A: Unsecured creditors are at the back of the line on this one. The court operates by absolute priority with secured creditors at the front of the line.

Q: What happens after the bankruptcy?

A: Instead of a discharge, as you’d have in a Chapter 11 or Chapter 13, the business is dissolved after all the assets have been fully disposed of and the creditors paid from the proceeds. That’s it. Last stop. All change.

Q: What does a Chapter 7 filing cost?

A: There’s a $245 case filing fee plus a $75 administrative fee, and a $15 surcharge for the trustee. This is exclusive of legal fees. We do not recommend going DIY with anything as important as bankruptcy and not one as different for individuals versus a business.

Yes, You Need a Lawyer!

You’re not required to have one, but you do need some experienced advice. A qualified attorney can advise you on whether you need to file for bankruptcy, and if you do which filing would be beneficial. An attorney can also tell you what bankruptcy can and can’t do. Litigant representing themselves (called pro se) in court are expected to follow all rules and procedures for the federal courts, and to be familiar with the United States Bankruptcy Code, the local rules of the court including those for exempt property, and the Federal Rules of Bankruptcy Procedure. However, you can find information posted on the court’s website, and the forms are free. Just don’t ask the judge or any court employees for advice, they are prohibited from offering advice by law. Calling Van Horn Law Group is a much better, easier, less stressful way to file your Chapter 7.