The Brown Law Firm — Jerome A. Brown, Board Certified Attorney in Consumer Bankruptcy Law and Business Bankruptcy Law by the Texas Board of Legal Specialization — 40+ Years Legal Experience

Business Bankruptcy

Chapter 7: Business Bankruptcy

Chapter 7 business bankruptcy is a court-supervised liquidation for a business that can no longer pay its debts. A trustee sells the company's assets to pay creditors, the business closes, and — unlike a personal filing — the company itself does not receive a discharge. Filing triggers the automatic stay under 11 U.S.C. § 362, which stops creditor collection efforts against the business right away.

When a business organization, such as an LLC, partnership, or corporation can no longer meet its financial obligations, a Chapter 7 business bankruptcy provides an orderly, court-protected wind-down of the business. A court-appointed bankruptcy trustee oftentimes liquidates business assets, if any, or assets are distributed to secured creditors, in order to pay such creditors. For a business facing mounting debt pressure, it's a clear, legal end point rather than a slow collapse.

This page covers how a business Chapter 7 works, how it differs from a personal filing, and how we approach it. Every business is different, so the best first step is a conversation with Jerome about yours.

How a business Chapter 7 works

A Chapter 7 business bankruptcy filing triggers an automatic stay, which stops creditor collection efforts against the business right away. A bankruptcy trustee is appointed to gather and liquidate the company's assets and pay creditors in the order the law requires. Secured creditors are usually allowed to foreclose upon or repossess their collateral. Unlike a personal case, there is no repayment plan and no fresh-start discharge for the company itself. The purpose is an orderly liquidation and closure of the business, handled under court supervision rather than left to creditors and collectors.

Whether a business is an LLC, partnership, or a corporation changes how this plays out, and so does the question of personal liability for individuals owning the business. We'll walk through your specific structure and what it means for you before anything is filed.

How business Chapter 7 differs from a personal Chapter 7 bankruptcy filing

  • No discharge for the company. A corporation, partnership or LLC does not receive a discharge in Chapter 7. The business is liquidated and closed; its debts are not "wiped" the way an individual's are. Only an individual debtor, including a sole proprietor filing personally, can receive a discharge.
  • No means test for the business. The means test that applies to individual consumer filings does not apply to a business entity. (If you file personally as a sole proprietor, your own eligibility is still evaluated, and an individual having a majority of business debt exempts an individual from the means test.)
  • Personal guarantees still matter. If an individual personally guaranteed business debt, filing bankruptcy for the business does not erase your personal liability for that debt. That individual liability often has to be addressed through that person's own bankruptcy filing, separately from the company's. This is one of the most important things to get right, and one of the most commonly misunderstood. Oftentimes, companies have lots of debt, but not many assets. That is why, depending on the circumstances, Jerome often recommends that the individual guaranteeing the company's debt file bankruptcy first to discharge the individual's liability on the company debt. Most times this results in saving an individual Client money since a company bankruptcy may not need to be filed, due to the fact that the company has little or no assets.
  • Sole proprietors are a special case. A sole proprietorship isn't legally separate from its owner, so business and personal debts of the individual are handled together in one personal bankruptcy filing, not a separate business bankruptcy case.

Sorting out which debts are the company's, which are personally yours, and how to handle each is exactly the kind of thing to map out before filing. Jerome does that with you.

Experience on both sides of the docket

Although Jerome now represents Debtors seeking relief from debt almost exclusively, in the past he has represented Clients on both sides of the bankruptcy process, including creditors. That perspective is rare, and it means he understands how the other side thinks, what trustees look for, where creditors push, and how these cases actually unfold. When he represents you individually or your business, he puts that knowledge to work protecting your interests at every step.

Jerome A. Brown is Board Certified in both Consumer Bankruptcy Law and Business Bankruptcy Law by the Texas Board of Legal Specialization.

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Facing a business in trouble?

The right path depends on the structure of the business, your liability on business debts, and your goals. We'll review your and your company's specific situation and lay out your options, so you can make an informed decision.

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