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How Chapter 7 can help small business owners

On Behalf of | Apr 24, 2024 | chapter 7 bankruptcy |

Running a small business can be a dream come true. But sometimes, even the best dreams hit rough patches. Unexpected expenses, slow sales or a tough economy can leave a business buried in debt.

If you are a small business owner facing financial hardship, Chapter 7 bankruptcy may be an option to consider.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is a legal process that helps individuals and businesses eliminate most of their debts. It is often called “liquidation” bankruptcy because the court appoints a trustee to sell the business’s assets and use the money to pay back their creditors.

How can Chapter 7 help small businesses?

For small businesses that are no longer profitable, Chapter 7 can be a lifesaver. By filing for bankruptcy, the owner can stop the financial bleeding and walk away from overwhelming debt. This allows them to close the business in a controlled way and avoid further financial strain.

Does the business have to close?

Once the business files for bankruptcy, it will cease to exist. After the trustee sells off all the assets, any remaining debt will likely be discharged. This means the owner cannot simply reopen the same business after filing.

Who can benefit most from Chapter 7?

Chapter 7 is typically best suited for certain types of small businesses. For example, a consultant or a freelance writer might benefit from it because their business relies more on their skills and experience than on physical assets. However, a bakery or a clothing store that relies on equipment and inventory would likely struggle to operate after a Chapter 7 filing.

What else should business owners consider?

Filing for bankruptcy has a significant impact on a business owner’s credit score. It can be difficult to secure loans or financing in the future. Additionally, there are fees associated with filing for bankruptcy, so it is important to weigh the costs and benefits carefully.

Chapter 7 bankruptcy provides small business owners with a helpful tool to navigate financial challenges and secure a better future.

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