Can You File Bankruptcy Under Chapter 7?
If your business has closed and you are contemplating filing bankruptcy, it is likely you would rather file under Chapter 7 than Chapter 13. A Chapter 13 merely adjusts debts, while a Chapter 7 can clear things up at a faster pace. After working hard to keep your business running, it is understandable that you may want a clean slate. With a Chapter 7 you can let go of old debts quickly and start fresh, while a Chapter 13 case would take three to five years to complete.
The “means test” is one way to find out if you are eligible to file a Chapter 7 case with your expenses and income. There is the possibility, however, of avoiding the “means test” in the instance that your debts are more than half business debts, not consumer debts.
If you cannot avoid the “means test,” it is likely that you still have no reason to be concerned as long as your business was recently closed. This is because if your income for the last six months is less than the established median income amount for a family of the same size in the same state, you automatically qualify for Chapter 7. More often than not, a failing business generates little income, therefore you likely made less than the required amount in the six months prior to your bankruptcy case.
The Big Three Factors in Your Bankruptcy Decision
When deciding between filing a Chapter 7 or a Chapter 13, there are three major factors that are almost always discussed:
- Assets: A Chapter 7 case has two ways of dealing with assets: by being either an “asset” or “no asset” case. A “no asset” Chapter 7 case allows the trustee to quickly decide that your assets cannot be taken and used to pay creditors. If your business was recently closed, you are more likely to have assets that can be liquidated and collected by the trustee. If this is the case for you, a bankruptcy attorney can explain where the earnings from the sale of your assets will go. They can also help you to decide if a Chapter 13 case may be better for you.
- Taxes: Tax debts seem to always be an issue when a business is recently closed and bankruptcy is being considered. In a Chapter 7 case some tax debts can be discharged and many cannot be. If you are in a situation where many taxes could not be discharged, a Chapter 13 may be a better option. When considering this option, your bankruptcy attorney will discuss a number of factors with you, including type of tax, when the tax as due, if a tax return was filed and if a tax lien was documented.
- Non-dischargeable debts: Challenges from creditors are much more common in bankruptcy cases with former businesses involved. These are a result of creditors wanting to avoid their debts being written off based on fraud or misrepresentation allegations. If the business owner is being accused of misrepresentative or fraudulent actions, it can complicate both Chapter 7 and Chapter 13 cases. However, a bankruptcy lawyer can identify some advantages can be gained by using a Chapter 13 case in this situation.
If you need to speak with a bankruptcy attorney about filing a Chapter 7 or Chapter 13 case for your Lafayette, IN business debts, the Law Offices of Brad A. Woolley can help.