Your business has so many debts that it has become insolvent. You cannot conceive of a plan that you believe would lead to a financial recovery. If the closure of the company seems inevitable, a Chapter 7 bankruptcy filing can be a good way to protect yourself as a business owner and to satisfy as many creditor accounts as possible given your circumstances.
Some people call Chapter 7 bankruptcy a liquidation bankruptcy because the process involves selling off assets to repay creditors. This process is a necessary step before the courts will discharge what you still owe on your unsecured business debts.
Who will manage the complex process of evaluating and selling your business assets?
The bankruptcy trustee handles the liquidation process
With rare exceptions, the bankruptcy trustee assigned by the courts to your filing will typically be the individual with responsibility for liquidating your business resources. You will have to create a comprehensive list of company assets along with financial records and documents identifying your unsecured creditors.
The trustee will then manage the process of selling off those assets and distributing the funds generated. It is actually quite convenient for them to manage this process, so you don’t have to worry about accusations of selling assets for inappropriately low amounts or paying the creditors in the wrong order of priority.
What if your company’s assets aren’t sufficient?
The chances are good that your business assets do not have enough resale value to fully repay all of the company’s unsecured debts. In such a scenario, certain creditors may receive only partial payment or no reimbursement at all.
The trustee will handle the highest priority debts first and will make a reasonable effort to maximize what they can get for the sale of the business assets in your case. However, the good news is that the remaining balance owed on those debts will likely be eligible for a discharge. After the completion of the liquidation process, you won’t have to worry about repaying the unsecured debts discharged in your business bankruptcy.
Knowing what to expect in a business Chapter 7 bankruptcy can help you prepare for the process ahead while maximizing your own protections.