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Key elements of a chapter 7 bankruptcy for a small business

On Behalf of | Mar 4, 2018 | blog, Firm News

There are a number of reasons why businesses fall into extensive debt. For those small business owners looking to eliminate such debt and close their business, a Chapter 7 bankruptcy might be a good idea. 

Considering the magnitude of this decision, it is important that business owners fully understand what it entails. There are a few key elements of a chapter 7 bankruptcy to be aware of.


The different bankruptcy types achieve different goals, and as such, they have their own requirements. For the Chapter 7 bankruptcy, one of the main requirements is that the application be for an individual or a small business. This can be either an LLC or a sole proprietorship. It may be beneficial for parties to review the federal bankruptcy rules to make sure that they do not have any disqualifying factors.

Business vs. individual

Since debtors may file a personal or business bankruptcy under Chapter 7, there are a few considerations that business owners must keep in mind. The type of incorporation is an important aspect. Seeing as people are their own businesses in sole proprietorships, a personal bankruptcy is a business bankruptcy; therefore, debtors only make personal filings. On the other hand, an LLC is separate from the business owner, therefore the filings are separate as well. If a business owner only files a business bankruptcy, any personal ties and financial responsibilities remain.

Advantage of bankruptcy

A Chapter 7 bankruptcy not only eliminates financial burdens, but it may also remove all of a business owner’s ties to the company. For those who choose this route, it allows room for them to start over. Whether business owners desire to start a new business or take another route, they have the option to do so.

These are a few of the key elements of a Chapter 7 bankruptcy for a small business. However, the process is extensive, so people should take some time to fully review the law and consider consulting with an attorney to select the best option for their situation.

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