Business owners sometimes become concerned that the financial mistakes or the financial condition takes a turn for the worse and they have to start thinking about filing a bankruptcy. In particular, they become worried about whether the business itself becomes part of the bankruptcy. There are different forms of being in business. If you’re a sole proprietor then certainly, any of the assets of that business are subject to the jurisdiction of the Bankruptcy Court. In addition, you might have a limited partnership or you might have just a partnership. In either case, those transactions and those corporations have to be disclosed on the bankruptcy petition.
Sometimes it’s just not possible to file, for example, a Chapter 7 case if you have a business that is worth a significant amount of money. Now, valuing the business gets to be quite tricky sometimes because you may need a professional come in there and evaluate it or it may be something that’s relatively simple. However, if there are significant assets to the business then it may very well be that you won’t be eligible for a Chapter 7 Bankruptcy, you might be eligible for a Chapter 13 Bankruptcy or for that matter, you may just need to file a Chapter 11 traditional business bankruptcy case.
In evaluating the business and trying to come up with a value for the business, the trustee may look at the goodwill of the business. The trustee may look at the hard inventory and the assets. They may look at the account receivables. All of those things have to be evaluated by a competent bankruptcy lawyer before you file the case. Another issue that sometimes people ask me is whether the corporation should file a bankruptcy case. My answer in 99.9% of the cases is no. There is no purpose in you filing a Chapter 7 Bankruptcy case for a corporation. The reason is fairly simple as that is you don’t or the corporation will not receive a discharge in the bankruptcy.
There are some limited circumstances in which it may make some sense to invest the attorney fees and the court filing fee to file a corporate Chapter 7 Bankruptcy. One that I can think of at the top of my head would be that if you’ve got a lot of inventory and a lot of assets that can be liquidated and you have an IRS debt that is outstanding, let’s say, for example, payroll, employee withholding taxes that remains outstanding, then it may make some sense for you to file a corporate bankruptcy for a Chapter 7 case.
At any rate, if you have any questions about whether you should file a bankruptcy case either personally or for the corporation, please call my office at 770-792-1000.
Bankruptcy FAQ:
Frequently Asked Questions: Table of Contents Who is permitted to file and maintain a chapter 7 case? Who should not file a Chapter 7 case? Is there anything that a person must do
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