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Chapter 7 advantages for small businesses

Florida small business owners struggling with overwhelming debt may find that a Chapter 7 bankruptcy, also known as a straight bankruptcy, is a good option. This is especially true when personal assets are tied to a business. As Fox Business explains, Chapter 7 is particularly appropriate for sole proprietorships since the sole proprietor and the business are one and the same. However, Chapter 7 also is appropriate for any business if there is no hope that it can be reorganized and its debts paid over time.

Simply put, the Chapter 7 procedure is that a trustee is appointed to sell all of the assets of the business at a liquidation sale. The sale proceeds are used to pay the outstanding business debts. If the sale results in insufficient money to pay all the outstanding debts, those remaining are discharged by the Bankruptcy Court. The business no longer exists and its former owner walks away free and clear of debt.

Chapter 7 bankruptcies generally are less expensive than other types of bankruptcies. In addition, should no one buy some or all of the assets at the liquidation sale, there is a possibility that the business owner can himself or herself buy them back and use them to start a new business.

Other Chapter 7 benefits

QuickBooks makes the point that there are additional reasons why a Chapter 7 bankruptcy may be the best, if not the only, option for a business owner. Owners of sole proprietorships and partners in many partnerships expose their personal assets to increased risk. Banks and other lending institutions often require a "personal guarantee" from the owner(s) of a small business in order to obtain the credit necessary for startup capital, leases, lines of credit, etc. In a Chapter 7 bankruptcy, many personal assets, including a personal residence, can be exempt from creditor claims.

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