What Is A Business Bankruptcy? Part II
This is part two of the story:
Recession is not part of the business plan and there are not enough cash reserves to cover the lines of credit and make all of the lease payments, so the business owner thinks about bankruptcy for the business. In reality, there is no reason to file a bankruptcy for the business because the business doesn't own anything. The business has the right to use the leased equipment but it does not own the equipment or the premises. The business has an obligation to pay for the equipment and the premise, but if the business closes down and there is no money left in the bank account, how is that going to happen? Usually, when this happens, and it happens quite often, the creditors will begin to look for the individual who personally guaranteed the loan.
So, the question is who is really going to have to pay the piper? Is it the corporation that has no assets or the individual who reaped the benefits of the corporation in the good days? Usually, it is the owner of the small business that will be filing a personal bankruptcy to discharge the personal guarantees.
This brings us to a very important point. Businesses do not receive a discharge of debts in Chapter 7. Unlike individuals, where the goal of the bankruptcy is to receive a discharge, businesses do not need a bankruptcy discharge because the Chapter 7 kills the corporation. So, usually, there is no need to file a small business bankruptcy. Now, of course, there are exceptions to this story and the general rule of not doing a corporate chapter 7. But, those cases in my opinion are few and far between.
This post is submitted by Carmen Dellutri, Esq. Mr. Dellutri is a Board Certified Consumer Bankruptcy Specialist, practicing in all of Southwest Florida, with offices in Port Charlotte, Fort Myers, Naples and LaBelle. He is the founder of the Dellutri Law Group, P.A., and he is one of the founding members of the Bankruptcy Law Network, Debt Law Network, Credit Law Network and Mortgage Law Network. Mr. Dellutri also sits on the Board of Directors for the American Board of Certification, which certifies attorneys as specialists.
