Can Businesses Discharge Their Debt with Chapter 7?
For many businesses facing overwhelming debt, filing for bankruptcy can be a practical way to obtain relief and move forward. However, not all types of bankruptcy work the same way for business owners. One common question is: Can a business discharge its debt through Chapter 7 bankruptcy?
The answer depends on the type of business you own and your long-term goals. If you’re considering bankruptcy for your business in Harrisburg, contacting an experienced bankruptcy attorney can help you make an informed decision.
Understanding Chapter 7 Bankruptcy for Businesses
Chapter 7 bankruptcy is often called “liquidation bankruptcy.” In a personal Chapter 7 case, individuals can eliminate certain debts and get a fresh financial start. For businesses, Chapter 7 works differently.
When a business entity, such as a corporation, LLC, or partnership, files for Chapter 7, it does not receive a discharge of debts in the manner for an individual. Instead, the purpose of a business filing Chapter 7 is to liquidate the company’s assets in an orderly way to pay off creditors.
Once the business’s assets are sold and the proceeds distributed, the business closes permanently. There is no discharge granted because the business itself ceases to operate and exist. Chapter 7 is not designed to help a business reorganize or continue running; it is purely a tool for winding down operations and addressing outstanding debts.
What About Sole Proprietors?
The situation is different for sole proprietors, where the business and the individual owner are legally the same entity. A sole proprietor can file a personal Chapter 7 bankruptcy, and both personal and business debts can potentially be discharged. This allows the owner to eliminate qualifying debts while possibly continuing the business, depending upon the circumstances.
If you are a sole proprietor struggling with business debts, Chapter 7 might provide real relief. Still, it’s essential to work with a knowledgeable Harrisburg bankruptcy attorney to fully understand what property is protected and what risks you may face.
Alternatives to Chapter 7 for Businesses
If the goal is to continue operating the business rather than closing it, other bankruptcy options may be better suited. For example, Chapter 11 bankruptcy allows businesses to reorganize and develop a plan to pay creditors over time while keeping the business open. Small business debtors can also explore Subchapter V of Chapter 11, a streamlined process designed to make reorganization faster and more affordable.
Choosing the right path requires a thorough understanding of bankruptcy laws, a careful evaluation of your business’s financial situation, goals, and the specific legal options available.
Contact a Harrisburg Bankruptcy Attorney Today
If your business is facing overwhelming debt, you don’t have to navigate this difficult situation alone. A reputable Harrisburg bankruptcy lawyer from our firm can help you explore your options, whether that means liquidation under Chapter 7 or reorganization under another chapter.
Call Cunningham, Chernicoff & Warshawsky today at 717-260-3527 or contact us online to schedule a confidential consultation. Let our well-versed Harrisburg bankruptcy attorneys guide you through the process and help you make the best decision for your future.