Running your own small to medium-sized business is no easy task. Success is a matter of attracting a dedicated customer base while navigating state and local laws. Being an entrepreneur means embracing these complexities while finding ways to remain solvent no matter which way the economy turns. You have to protect yourself at the individual level.
Even the most fastidious business owner needs breathing room from time to time, especially when external factors come to bear. If you find yourself struggling to meet your financial obligations, there is a legal apparatus in place to help you get back on your feet in the form of bankruptcy. But how do you know if filing is the correct choice for your business?
What is Chapter 7?
Chapter 7 bankruptcy is a legal process designed to give individuals a clean slate. With a Chapter 7 filing, individuals are given a chance to eliminate certain types of debt such as:
- Medical bills
- Credit card balances
- Rent
- Utilities
- Certain kinds of mortgages
- Auto loans
This list is in no way exhaustive. In order to be eligible for a Chapter 7 filing, however, the petitioner must satisfy a means test. The test examines their income, comparing it against the state median, before further examining routine expenditures. If the petitioner manages to satisfy the test, they will be eligible to discharge many of their key debts. Discharging is a matter of liquidating your personal assets such as additional properties, vehicles and high-value possessions. On paper it sounds great, but what are the real pros and cons?
The advantages of a Chapter 7 filing
The primary advantage to filing for Chapter 7 bankruptcy is that it can potentially eliminate a large portion of your debts. While the Chapter 7 route is usually reserved for individuals rather than businesses, certain types of small business owners can benefit immensely during times of financial hardship. Things like rent, utilities and loans are especially valuable, especially if you’ve had to personally bankroll your business.
Another advantage is the fact that Chapter 7 is a relatively quick process. Many court appearances happen within a few months of the initial filing. Additionally, once your assets have been liquidated under Chapter 7, your debtors cannot collect future money for the same purpose.
The disadvantages of a Chapter 7 filing
Chapter 7 gives many individuals a new start, but it is in no way perfect. Cons include:
- Undergoing a rigorous means test for eligibility
- The liquidation of your personal property
- Inclusion of your filing on public records