When your business isn’t bringing in enough money to survive and keep its doors open, one of the options is for you to close your business and consider bankruptcy. Not all business owners want to stay open when their plans don’t work out, so it’s reasonable to consider liquidation to help resolve your debts and end the business for good.
Chapter 7 bankruptcy, which is known as liquidation bankruptcy, is a helpful way to get out of debt when you don’t have enough money to pay them off. Chapter 7 bankruptcy helps you liquidate your business assets through auctions and sales so that creditors get as much compensation as possible while allowing you to walk away without further obligations to those debts.
Certain debts can’t be discharged in bankruptcy, like tax debts, but most can be. For this reason, business owners who don’t want to continue on in the industry may want to consider this method to resolve past-due debts, collections activities and other obligations that they otherwise would not be able to handle.
Should you try to avoid Chapter 7 bankruptcy with liquidation sales?
It can be helpful to liquidate assets on your own prior to seeking bankruptcy to show that you tried to repay the debts that you could, but it’s not always necessary. When you file your petition for bankruptcy, you’ll be able to show the value of the property you still have in comparison to your debt load.
For example, you may owe $100,000 to creditors for stock. If you still have $50,000 in stock, you may be able to sell it at a reduced rate or return it to creditors to help wipe out what you owe. If that doesn’t work, the bankruptcy court may liquidate the assets in an auction sale, so that as much money can be collected as possible.
The benefit of bankruptcy is that it may allow you to have debts that you cannot repay discharged in full. That way, even if you can only actually repay $35,000 of that $100,000 of debt, you won’t end up shouldering the rest personally.