CHAPTER 7
When a sole proprietorship simply cannot continue to pay his/her debts a Chapter 7 may be the best option. A sole proprietorship can include a married couple owning the business together. It must be remembered that when a sole proprietor files a Chapter 7 the person is filing the case. So the filing is not limited to just the business debts and business assets.
A Chapter 7 process generally goes fast and results in a discharge of all or most debts. The process works best when all information is disclosed on the Chapter 7 schedules.
All debts and all assets must be listed.
DEBTS HAVE TO BE CLASSIFIED
- Secured debts are debts where property has been pledged as collateral. This can be a car or truck that has been financed or perhaps restaurant equipment that has been financed;
- Priority Debts have been given a higher status by law that will survive the Chapter 7 discharge. These debts include payroll taxes; recent income tax debts; and sales taxes; child support arrearages; and student loans.
- Unsecured debts are debts with no liens-such as credit cards; medical bills; past due rent and/or utilities, etc.
- Debts that are co-signed and debts with someone else’s personal guarantee have to be listed. The Chapter 7 does not discharge the debts to the co-signer or the person or entity who has guaranteed the debt.
REQUIREMENTS FOR AN INDIVIDUAL FILING A CHAPTER 7
- The Debtor must provide proof of federal income tax filings for the prior 4 years. An affidavit will be sufficient if the Debtor was not required to file income taxes for one or more of the years.
- The Debtor must provide proof of income for the last 60 days and some evidence of income for the past 6 months. When listing income it must include all income in the household such as a non-filing spouse.
- All schedules filed with the case must be detailed and honest to provide sufficient information for the trustee, creditors and the court.
- A list of any possible causes of action the Debtor may have;
- A Chapter 7 trustee is likely to require the production of bank statements for the last few months.
- If an individual continues its business operations a Chapter 7 trustee may require proof of insurance. This may come into play if the business is high risk such as roofer or if the individual has employees.
THE BENEFITS OF AN INDIVIDUAL BUSINESS CHAPTER 7
- The filing of a Chapter 7 imposes the powerful Automatic Stay against all creditors including the IRS from taking any action to collect pre-filing debts. It provides powerful immediate relief. The Automatic Stay also prevents threatened repossessions and garnishments.
- The cost including the filing fee and the lawyer’s fees are very reasonable. The filing fee for a Chapter 7 is $335. Generally attorney’s fees are flat and affordable.
- Individual business owners are generally not required to fill out the Means Test. The exception being if consumers debts (and home mortgages are considered consumer debts as well as the balances on student loans) are greater than the business debts.
- Chapter 7 cases can be filed very rapidly-sometimes the same day. This is not recommended but is available in an emergency.
- Unlike a Corporate Chapter 7 some debts can be reaffirmed. An example is a car note that is current and you want to keep it.
- It is possible to redeem certain property that has a lien on it. For example if $15,000 is owed on a car but its value is $8,000 one can redeem it for its market value of $8,000.
- Leases and executory contracts can either be assumed or rejected.
- Unlike a Corporate Chapter 7 the individual who files a Chapter 7 will get a discharge. The Chapter 7 Debtor can often just continue its business operations or start a new business. Also you can continue to use the same name.
For more information on Bankruptcy For Individually Owned Businesses, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling today.