How to File Chapter 7 as a Business

Chapter 7 bankruptcy allows a business to sell all of its assets to pay off outstanding debts. Liquidation can remove the business from debt, but this is often the beginning of the end, as the business loses all sources of income. Before you file Chapter 7, be sure that you have trusted legal counsel at hand and have exhausted all other options.

Difficulty: Moderate

Instructions

Things You'll Need:

• Bankruptcy lawyer
• Records of debt and company assets

1. Meet with your bankruptcy lawyers to fill out the paperwork needed to start the Chapter 7 process. Provide your legal advisers with a list of your creditors and the amounts that you owe them, and declare any exempt business assets that you believe you are entitled to keep. File the completed application, and wait to hear from a court-appointed trustee.

2. Attend your first meeting of creditors with your lawyer, and answer any questions your creditors ask you. Remember that you are under oath and required to respond to the best of your knowledge. Realize that the judge cannot ask you questions during this meeting, and your lawyer cannot object to any queries.

3. Wait to hear from the court-appointed trustee about your exemptions. This person can object to any of your liquidation exclusions, but must notify you of their statuses within 30 days of the first meeting of creditors.

4. Comply with any court orders as the Chapter 7 process develops. For example, you'll likely be told to stop all work and production at your facilities, so that the asset values don't deteriorate before liquidation.

5. Keep your employees informed as you continue to file Chapter 7. If you have several large divisions, remind them that they may not lose their jobs, since another company could purchase the entire group during liquidation.

6. Allow the trustee to sell your business assets. Your legal and administrative fees will be paid before your creditors receive payment. If there is any money left afterwards, shareholders can claim the money that is due to them. Employee stock options are given the lowest priority for repayment.

Tips & Warnings

• Consider Chapter 11 bankruptcy as an alternative to liquidation, as it restructures your business debt, so that your company can continue to operate.
• Remember that your creditors cannot hound you for repayment after you file for bankruptcy.
• Do not refuse to answer questions during your first meeting of creditors because doing so gives the trustee the option of allowing your business debt to continue after liquidation.