When Life Gives You Lemons — Call an Attorney

If your business didn't do as well in 2014 as you had hoped, and you are struggling to pay the bills, you may be thinking about filing for bankruptcy protection.  However, before you can file, you have to determine what type of bankruptcy is right for your business. There are differences between Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcies. Learning about these differences and discussing your options with a bankruptcy attorney will help you determine which is the best option for you. Here are a few of the things you should know about Chapter 7 bankruptcy if you are considering filing bankruptcy for your business.

In Order to File for Chapter 7 Bankruptcy, Less than 50 Percent of Your Debt Must Come From Your Business

One of the unique factors about a Chapter 7 bankruptcy is that it allows you to discharge both your personal debts and your business debts. However, in order to qualify for this type of bankruptcy, less than 50 percent of your total debt must be business debt. This means that more than 50 percent of your debt must be personal debt.

If your business has been failing, there is a good chance you have been living off of credit cards, struggling to pay your mortgage or have taken out personal loans to get money to live off of, so clearing this hurdle may not be challenging. But, if you do not have personal debt or your personal debt accounts for less than 50 percent of your total debt, you will not be eligible to file a Chapter 7 bankruptcy.

You Will Not Be Put on a Repayment Plan but Most of Your Assets Will Be Liquidated

Another big difference between Chapter 7 bankruptcy and other chapters of bankruptcy is that you won't be put on a repayment plan. In order to qualify for Chapter 7 bankruptcy, you must show that you do not have the income needed to make a serious dent in your debt if you were to be put on a repayment plan. However, instead of being put on a repayment plan, your eligible assets will be immediately seized and sold. The money that is collected through this liquidation process is then used to pay your creditors back. Once this process is done, your remaining debt will be wiped clean and you will have a fresh start.

While there are many benefits to not having a repayment plan in place, one of the biggest downsides to not having a repayment plan in place is that you will most likely have to close your business during the liquidation process. There are a few exceptions which allow you to keep your business open when you file Chapter 7 bankruptcy, but they are few and far between, so the majority of business owners will have to close their doors. If you are on a repayment plan, your business does not have to close down. As such, you have to carefully decide whether you are ready to shut the doors to your business, at least temporarily, when deciding which chapter of bankruptcy to file.

Chapter 7 Bankruptcy Will Not Get Rid of All of Your Debts

The last thing that you need to know if you are considering filing for Chapter 7 bankruptcy is that filing will not eliminate all of your debts. There are some types of debt that are not dischargeable, regardless of which chapter of bankruptcy you file. Federal tax debts, child support, most student loans and criminal restitution judgments will not be discharged when you file for bankruptcy, meaning you will still owe money for those items. If the bulk of your debt is owed because of one or more of these items, you will carefully have to consider whether filing for bankruptcy is right for you, as these payments will still remain when you file.

While you may learn the basics of what you need to know about different chapters of bankruptcy by doing your own research, there is still a lot more information that you may overlook. As such, it is important to talk to a bankruptcy attorney when deciding which chapter of bankruptcy you should file. They can provide you with information pertinent to your case and give you the pros and cons of different chapters based on the unique circumstances you are in.  If you have personal and business debt, and paying the debt back through a repayment plan isn't an option, a bankruptcy attorney can help you decide if filing for Chapter 7 bankruptcy is right for you. You can find an attorney at a firm like Kreisler Law PC Chicago.