In the case of business bankruptcy, an outsider is responsible for the liquidation of your assets and settling of the debts. A corporation or an LLC can file under chapter 7 business bankruptcy which is different from personal bankruptcy under the same chapter. As per lawyers of Los Angeles based law firm the business stops operations and is handed over to the trustee for liquidation under the court’s instructions. The business assets are liquidated to repay the creditors. Since exemptions are not applicable here, the entire company can be liquidated.
Once the liquidation of assets takes place and the creditors are paid off, the business does not owe any obligation. Everything from contracts, utility bills, lease obligations, etc. are cleared to the extent possible. Unless the business owners are personally liable for the debt, they are off the hook. Once the creditors are paid, any money that remains can be handed over to the business owners. Since usually, businesses that file for bankruptcy under chapter 7 have more liabilities than assets, there is generally nothing left for owners.
Personal liability not erased by business bankruptcy
Sometimes, business owners are personally liable for any debt for their corporate or LLC. If that is the case, then irrespective of your business bankruptcy discharge, you are held liable and can still be pursued for those debts. To get rid of these debts you need to either file for Chapter 7 personal bankruptcy or renegotiate with the creditors for a settlement. If that does not take place, you can end up facing creditor action.
Cost for business bankruptcy
Though the court fee for a chapter 7 business bankruptcy is like that for personal bankruptcy, the trustee gets a bigger commission. This is because there are more assets that can be liquidated, and the proceeds distributed to the creditors in case of business bankruptcy. The good part is that money paid to the trustee is not coming from your pocket. However, since you require a bankruptcy lawyer for business bankruptcy, you end up paying more.
Usually, the trustee sells the assets for an amount lesser than you or your lawyer (law firm) would have. Thus, if you sell your business assets yourself (with the assistance of lawyer/law firm) you could settle the business debts easily without the need to file for bankruptcy.
Does business bankruptcy work for partnerships, LLCs, or corporations?
Usually, chapter 7 business bankruptcy is not preferred in case of partnerships as it does not help in getting rid of personal liability for business debts. Thus, creditors can easily come for the personal assets of the partners. Even the trustee in chapter 7 bankruptcy can sue the partners personally to recuperate cash to repay the debts.
In the case of a single-owner corporation or LLC, a chapter 7 personal bankruptcy might resolve both yours and your business’s financial problems. Usually, the bankruptcy trustee takes over the corporation or LLC to liquidate it. this way you are free of any personal liability for your business debts.