Chapter 7 Business Bankruptcy Due to COVID-19
As the economy struggles amid the COVID-19 pandemic, businesses of all sizes in Pennsylvania and across the country are suffering financially. With so many companies forced to restrict or cease operations altogether, the resulting workforce reduction and revenue losses have many Pennsylvania businesses facing difficult decisions about their future. For those struggling financially before the COVID-19 pandemic hit, many are ready to call it quits and file for Chapter 7 bankruptcy.
Chapter 7 Bankruptcy COVID-19
While Pennsylvania businesses are opening up many businesses closed due to COVID-19 have made public the fact that they will be unable to recover. For businesses dependent on other companies, or reliant on consumer spending, the stay-at-home orders and shutdown of non-essential businesses has led to many slipping into insolvency. If your business is falling deeper into debt, making it challenging to keep your company open, sometimes the best business decision is to reduce your losses and seek relief through Chapter 7 bankruptcy.
How Chapter 7 Business Bankruptcy Works
A Chapter 7 bankruptcy allows a business to wind down its operations and “liquidate” its assets. Unlike a personal Chapter 7 bankruptcy, there are no exemptions in a business bankruptcy, and secured creditors have the right to collateral that secures their loans. Upon filing for bankruptcy, a bankruptcy trustee will be assigned to your case and take any remaining business assets and sell them. Once the business assets have been sold and the proceeds have been distributed to creditors, the bankruptcy is complete, and your company will no longer be in operation.
How a Chapter 7 bankruptcy will work for your particular business will depend upon the structure of your business entity:
Is Your Business a Sole Proprietor or Partnership?
Small businesses are often structured as a sole proprietor or partnership where the owner’s labor is the core of the business – like accountants, coaches and consultants. These types of businesses primarily rely on the owner or partners’ labor and expertise rather than inventory, products, and equipment. As a sole proprietor or partnership, the business owner or partners are personally liable for the debts and obligations of the business. When sole proprietors or partnerships seek relief through Chapter 7, they are not just filing bankruptcy for their business but also filing to eliminate both personal and business debt in a single filing. And even though personal assets are included in the bankruptcy estate, you can use exemptions to protect some — and maybe even all — of your property.
Is Your Business a Limited Liability Company (LLC) or Corporation?
A limited liability company or corporation often seeks Chapter 7 bankruptcy relief to close down the company and wrap up operations in an orderly manner. Chapter 7 bankruptcy provides a transparent and systematic method for businesses to wind down their operations, sell off their assets, pay back creditors, and shut down the LLC or corporation.
Proceeding with a Chapter 7 business bankruptcy allows appointment of a Chapter 7 Trustee to handle the estate. Creditors may prefer this because it reduces the chance that the business owner is cheating by hiding company assets instead of selling them to pay back business debts. Many business owners prefer having peace of mind knowing they will be able to put this behind them and go on to the next venture.
Seek Advice from Experienced Bankruptcy Attorneys at Alfred Abel Law Offices
If you find you are no longer able to keep your business afloat due to the impact of COVID-19, the experienced bankruptcy attorneys at Alfred Abel are here to help. We help businesses of all sizes across Pennsylvania file for bankruptcy protection and represent businesses and individuals who are debtors or creditors. Contact us today to schedule a consultation.