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Pros and Cons of Corporate Bankruptcy

November 16, 2013

Should I file a Corporate Chapter 7 Bankruptcy? 

If you own a business and that business is struggling, bankruptcy might be a consideration for your business.   This article will address filing a Chapter 7 for your business, which essentially means dissolving the business.  If you file a Chapter 7 bankruptcy for your LLC or S-Corporation, there are some things you should know.  This article will help you think through the process.

 

The first thing you should know is that corporations cannot get a discharge of their debts.  A bankruptcy discharge is a court order that releases the debtor from personal liability for all of his or her dischargeable debts and prevents creditors from attempting to collect those debts from the debtor.  However, a discharge only applies to individuals.  So, why file a Chapter 7 bankruptcy for your business? 

 

The advantages are that the attorney fees are inexpensive.  They will be much more inexpensive than it would be to hire an attorney to attend all of the depositions you would have to attend if your business was getting sued.  A corporate bankruptcy would also get closed much quicker than litigating all of these lawsuits would be.  Once your corporate Chapter 7 is filed, the debtor essentially walks away and lets the trustee and creditors liquidate whatever assets the corporation has.  A big advantage of this is that the liquidation of assets is supervised by the court.  This usually keeps creditors happy about the liquidation process, rather than them thinking you are trying to hide assets. 

 

There are, however, disadvantages of filing this type of bankruptcy.  The first disadvantage being that you have to be ready to shut down the business completely.   As far as the liquidation goes, you will not have much flexibility as to how it is done, meaning you will likely not be able to choose what property to sell, when to sell it and under what circumstances the sale will occur.  You will also not have any control over how the proceeds of the liquidation are disbursed.  Additionally, the trustee and the court may ask for several documents, including tax returns and bank statements, which can date back 4 years in Missouri. 

 

It is also important to consider filing a personal Chapter 7 if you are going to file a Corporate Chapter 7.  Many business owners personally guarantee certain debts for their business.  Creditors normally require this to ensure that they get their money.  If you have personally guaranteed any debt and are shutting down your business, you should consult a bankruptcy attorney to see what your options are.  We offer free consultations at several locations in the St. Louis, St. Charles and Southern Illinois areas.  Give us a call today if you would like to speak with one of our experienced bankruptcy attorneys. 

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