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What debts are dischargeable in a business bankruptcy?

On Behalf of | Nov 17, 2022 | Business Bankruptcy |

More and more businesses are feeling the pinch of high inflation, supply chain issues and the aftermath of a pandemic. The landscape of business as we knew it in the past has changed, leaving some businesses struggling to stay afloat. Many business owners are looking to relieve some of their debt through bankruptcy protection. But does bankruptcy erase all of your business debt?

What does it mean to discharge your debt?

A discharge in bankruptcy means that the debtor is released from personal liability for the debt. The debtor, in this case the business owner, partner, or corporation, is no longer legally responsible for the debt repayment. In addition, the discharge of the debt prevents creditors from taking any action to collect the debt, including phone calls, correspondence, levies or garnishment.

Does it matter what type of bankruptcy is filed?

If your business files for Chapter 11 or Chapter 13, some repayment of your existing debt is required. The repayment plan may include restructuring or reorganizing your business plan and usually includes an extended period for repayment. Sometimes Chapter 13 allows for some debt like court fees to be discharged. Chapter 7 bankruptcy is for qualifying businesses that cannot repay the debt to creditors within a given period, usually three to five years. Certain debt under Chapter 7 filing is dischargeable. 

Debt that is dischargeable under Chapter 7 includes unsecured debt such as:

  • Credit card or other revolving credit debt
  • Medical bills
  • Utility bills
  • Lease contracts
  • Some tax penalties
  • Judgements from some court filings

Debt that is not dischargeable under Chapter 7 includes:

  • Child support and alimony
  • Debts to government agencies including unpaid taxes or federal tax liens
  • Student loans
  • Judgements for drunk driving or malicious acts that injure another person or property
  • Debt not listed on the bankruptcy filing cannot be discharged

There are certain requirements that you must meet in order to get any debt discharged during bankruptcy. The court can deny the discharge of debt if you fail to provide the required information such as tax filings, attempt to conceal information pertinent to your bankruptcy or fail to comply with the required financial management course.

 Should you file Chapter 7 to discharge business debt?

Bankruptcy filings are specific to your business. It can depend on the way your business is organized, the size of your business and your plan after bankruptcy. An attorney who specializes in business bankruptcy law can help you find the optimal solutions for your business.