Will I lose my business if I file personal Chapter 7 bankruptcy?

Published on November 21, 2011 by: Ian M. Falcone

I am often asked whether a client will lose their business if they file for personal Chapter 7 bankruptcy. The short answer, of course, is, it depends. A business is an asset. And, like any asset, it must be listed in your schedules and is subject to liquidation by the Trustee.

If you owned shares of stock in Coca-Cola and filed a chapter 7 case, the Trustee would have the opportunity to sell your shares, raise money and ultimately distribute funds to the creditors. The same is true in your personal case, but the situation is far more complicated.

First, there is an easy market in which to sell shares of Coca-Cola. This is most often not the case for a small business. Secondly, most small businesses simply have no real market value. Often, they have very limited assets and substantial debts. For example, if you are a plumber, you probably own a truck, some hand tools and a limited amount of parts. The real value of your business is you. What could the Trustee possibly sell? However, if you are a bookstore, the value of your business lies in its inventory and its goodwill. Basically, the more the business is service oriented, the less likely it has a value and therefore, is less likely to be sold by the Trustee.

We always ask our clients for the quick sale value of the business' assets and the debt associated with the business. If there is more debt than value, we usually list the value of the business as zero. In these cases, the Trustee typically conducts a cursory investigation and agrees with our analysis. The end result, the client gets to keep their business.

This is obviously a complicated and very fact specific area of law. If you own a business and are thinking of filing personal bankruptcy, be sure to discuss the situation in detail with your attorney. Not every attorney is prepared to handle these cases. Ask whether they handle business related cases. Be honest with your lawyer. They cannot do their job unless you tell them the truth.

Consumer Bankruptcy 101

Published on February 1, 2010 by: Ian M. Falcone

The decision to file for personal bankruptcy protection is, at best, difficult. Individuals often experience feelings of failure and sometimes wrongdoing. People make mistakes or have bad circumstances thrust upon them. Regardless, they are not required to suffer forever. The Bankruptcy Code is designed to help people restructure or eliminate their debt. The two major consumer chapters are Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 is sometimes called a "straight bankruptcy" or "liquidation". Theoretically, an individual gives up everything he owns in exchange for getting rid of all of his debt. Neither of these statements is completely accurate. The law provides for "exemptions" or protections in differing amounts for different categories of property. These amounts vary substantially from state to state. However, in Georgia, it is fair to say that most Chapter 7 debtors have little to no equity in the items they own.

Unfortunately, not all types of debts are dischargeable. Debts for alimony, support, or maintenance, debts for certain types of taxes, and debts incurred by fraud, may not be discharged in bankruptcy.

In Georgia, the ideal Chapter 7 debtor has little to no equity in the items he owns, does not have excessive earnings and owes predominantly unsecured debt, such as credit cards. Under the right circumstances, the debtor can keep his basic property, get rid of the majority of his debt and get a fresh start.

When the circumstances are not right, a debtor should consider filing for relief under Chapter 13. Chapter 13 is properly known as a "reorganization of an individual with regular income." It is sometimes referred to as a "wage earner plan" or "reorganization". Under this Chapter, a certain amount of repayment is required. In order to qualify, a Chapter 13 debtor’s take home pay must be greater than his regular household expenses. The amount creditors receive is based on several factors, including the debtor’s income, debtor’s expenses and value of debtor’s property after exemptions. Unsecured creditors will receive anywhere from 1% to 100% of the money owed to them over a 3 to 5 year period. Chapter 13 debtors typically have more secured debts than a Chapter 7 debtor and are often delinquent in their mortgage or car payments. If successful, a Chapter 13 debtor may be eligible for a discharge of certain debts which might not have been discharged in a Chapter 7 case.

Chapter 7 bankruptcies will stay on a debtor’s credit report for 10 years and a Chapter 13 stays for 7 years. Of course, most credit information remains on a report for 7 years.

Today, the stigma of filing for bankruptcy protection has been substantially reduced. Debtors come from all walks of life. They are business owners, neighbors, teachers, police officers, firefighters, and even doctors. They are usually good people who need a second chance. Under the right circumstances, the Bankruptcy Code provides them with that chance.

If you are experiencing serious financial difficulty, you should consult with an attorney to discuss your bankruptcy and non-bankruptcy options. For more information, visit our Atlanta bankruptcy attorney website.