Yes. Businesses can also file for Chapter 7 bankruptcy relief. A corporation does not receive a discharge but the business can shut down, turn over its records to a bankruptcy trustee and not have to deal with creditors, pending lawsuits, or collection actions. Sort of a court administered wind-down of a corporation. Businesses include S-corporations and LLCs.
A corporation or an LLC files a Chapter 7 business bankruptcy, a different animal than a Chapter 7 personal bankruptcy. Filing a business bankruptcy lets the owners walk away from the problems of their business and turn it over to a bankruptcy trustee for an orderly liquidation. The business stops operating, and the court liquidates its assets (if any left) and pays what it can to business creditors. Exemptions don’t apply in a business bankruptcy, so the trustee can take anything the business owns. The entire company is liquidated. A lot of times there are no assets left to liquidate so the case becomes a no-asset chapter 7 case. You cannot continue to operate once the case is filed and you will not have your business back. In certain instances, you can however start a new company/corporation and you can retain any assets not administered by the bankruptcy trustee.
Business Bankruptcy Doesn’t Erase Personal Liability:
Careful planning is needed to be sure that are proper procedures in place before any new corporation is started or assets transferred. Working with a Bay Area certified specialist like David A. Arietta is key.
Note that a Chapter 7 trustee could prosecute or settle ongoing litigation. Sometimes a business cannot afford to continue prosecuting a pending action. A bankruptcy trustee has the power to file suit or continue a pending lawsuit and “jumps in the shoes” of the corporation. The trustee can hire his or her own attorney and continue litigating the matter with the expectation of some recovery for creditors. Just some of the possible benefits of a corporate Chapter 7 filing.
If you are personally liable for corporate or LLC debts, you could still be liable even after the business bankruptcy. Did you sign any personal guarantees? Did you take our business credit cards? You will need to discharge your personal liability for the debts by fili ng for Chapter 7 personal bankruptcy or by negotiating a settlement with the creditor(s). Otherwise, the creditor(s) can still come after you for full repayment of the debt, even after the business is closed and its liability for the debts is discharged in business bankruptcy. This only applies if you signed a personal guarantee or something similar. In general you are not personally liable for corporate debts. David A. Arietta has helped many business owners recover after their corporations filed for Chapter 7 bankruptcy relief.
For a detailed review of your situation call (925) 472-8000.