Do you own your own company? Are you part of a small organization or firm? Is your business closing its doors? Filing for Chapter 7 bankruptcy is a valuable option for some corporations and limited liability companies (LLC’s) that are dissolving or going out of business.
Just as an individual can file for bankruptcy, so can a business. Corporations and LLC’s are formed by filing specific documents with the Secretary of State. Once a corporation or LLC is formed, it becomes its own entity separate and apart from its owners. As an owner in a corporation, you are a shareholder. An owner of an LLC is referred to as a member. As its own entity, the corporation or LLC has its own assets and debts.
Limited Liability
Both corporations and LLCs are limited in their liability. The owners of the company are typically not personally liable for obligations of the business. Thus, the corporation or LLC is liable for its own debts. Forming a corporation or an LLC is a common way owners shield their personal assets from the debts of the business. Under certain circumstances, however, an owner may still be liable for corporate debts. If the owner accepts responsibility personally for the business debts either by cosigning or guaranteeing a loan using personal assets as collateral, then he/she avails himself to personal liability.
From a creditor’s perspective, if a corporation or LLC is merely an “alter ego” of an owner then a creditor may be able to reach the personal assets of an owner to satisfy a debt. This is commonly known as “piercing the corporate veil.”
Chapter 7 Bankruptcy
A business Chapter 7 bankruptcy is designed to liquidate a company’s assets and pay its obligations. Corporations and LLCs do not receive discharge under Chapter 7. Since exemptions are not available, all assets of the business are sold and the proceeds are distributed among creditors.
Although a bankruptcy means the termination of a business, an advantage to Chapter 7 bankruptcy is that it is a fairly easy liquidation of a business. Once bankruptcy is filed, the bankruptcy trustee is in charge of selling assets and paying creditors.
If an owner is personally liable for a debt of the company, the Chapter 7 bankruptcy does not discharge the obligation to pay. Therefore, if a business debt is not paid off during bankruptcy, a creditor may come after an owner’s personal assets to satisfy the obligation. A typical solution to the issue of owner liability is for the owner to file a personal Chapter 7 bankruptcy. Under the personal Chapter 7 bankruptcy, certain personal debts may be discharged.
Legal Guidance
It is important to understand bankruptcy procedures and how the closure of your business will occur. An experienced attorney can walk you through the process. Attorney Chris L Arrington handles bankruptcy matters and offers a free consultation. Don’t face bankruptcy by yourself; call our office today to discuss how we can help your business through the process.