Should My Business File for Chapter 7?

by Brett Weiss, Esq.

October 16, 2011

Post image for Should My Business File for Chapter 7?

I frequently meet with clients who own a business that has financial problems. It may not be able to pay its bills as they come due, there may be an eviction threatened, or a lawsuit. These clients have done some homework, and usually start out our meeting by saying that they want to retain me to file Chapter 7 bankruptcy for their corporation or LLC.

They are also surprised when I tell them that for most businesses, Chapter 7 makes absolutely no sense.

Why?

Chapter 7 is the type of bankruptcy that most people think of when they think of bankruptcy. For individuals, it results in the discharge of general unsecured debts, such as credit cards and trade debt. It allows for the discharge of some older taxes. So why wouldn’t it make sense for a business in financial difficulty to file?

The answer lies in Section 727(a)(1) of the Bankruptcy Code. This section, which deals with Chapter 7 discharges, says: “The court shall grant the debtor a discharge, unless the debtor is not an individual.” Since corporations and LLCs are not individuals, they cannot receive a Chapter 7 discharge.

This means that, although a corporation or LLC can file for Chapter 7, it cannot receive a discharge. So why would it even think about filing for Chapter 7? That is the subject of an earlier blog I wrote on this topic.

Related Posts Plugin for WordPress, Blogger...
The following two tabs change content below.
Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.

Last modified: October 18, 2011