Every small business goes through financial ups and downs and nevertheless continues to operate and thrive. However, the small business bankruptcy attorneys at Dennery Law, understand that extended periods of financial hardship threaten the future of your business and bring up key questions that every small business owner must answer – often under significant time pressures. It may be that your trade vendors are refusing to deliver goods and you don’t have the inventory to fill customer orders. Perhaps your landlord has served you with a demand for payment that you cannot realistically hope to satisfy. Even worse, a taxing agency has seized your bank accounts and you can’t make payroll, or renew a crucial operating license. It could be that closing the doors is your best way out.
Making hard decisions is what being a small business owner is all about. In some cases, the best decision is to close down and minimize the losses. A small business Chapter 7 bankruptcy allows the small business owner to regroup and salvage the value that remains for the good of employees, creditors, and peace of mind.
What Is Chapter 7 Liquidation?
Chapter 7 is designed to help business owners who have decided that closing down the operations and settling the business debts is the better way to go. Chapter 7 Bankruptcy provides for the liquidation of business assets and for the orderly distribution of the resulting proceeds according to a predetermined order of priority. As a general rule, the proceeds from a chapter 7 liquidation are paid out to business creditors before the owners, investors, or shareholders. Equity holders only recover if there is money left after all creditors are paid. In many cases, a chapter 7 liquidation can reduce business debts that are personally guaranteed by the individual owner.
Does My Business Qualify for Chapter 7 Liquidation?
A Chapter 7 small business liquidation is available to all small businesses, including corporations, limited liability companies, partnerships. Upon filing a bankruptcy case, all company assets become the property of the bankruptcy estate. Unlike individual filers, corporate entities are not entitled to any personal exemptions that could preserve business assets for the debtor.
Are There Tax Consequences When Filing?
Generally, the discharge of debt is considered income under the Internal Revenue Code. However, Internal Revenue Code Section 108 excludes from income any debts discharged while a person or business is insolvent. Any debt that is ultimately discharged in a small business Chapter 7 bankruptcy will not count as income to your business or the business owner. Following the completion of a Chapter 7 case, an IRS 1099(c) form will be distributed and used to exclude the discharged debts from the business owner’s income.
When properly planned, a small business Chapter 7 bankruptcy is an effective way of resolving all issues with business creditors. Filing a small business Chapter 7 bankruptcy ensures that:
- Business creditors, landlords, and taxing agencies stop enforcement actions
- Proceeds from the sale of business assets are distributed fairly amongst employees, contactors, and creditors.
- Creditors with personal guarantees are satisfied to the fullest extent possible by business assets rather than the owner’s personal income.
The small business bankruptcy attorneys at Dennery Law help you assess whether Chapter 7 bankruptcy is right decision to make for your small business. In-person or remote appointments are available on weekdays, evenings, and weekends in Lexington, Louisville, and Northern Kentucky.
SCHEDULE A CONSULTATION, or Call 859.445.5495.