Asset Exemptions For Businesses Filing For Bankruptcy

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Consumers finding themselves too deep into debt to crawl out have the option of filing for Chapter 7 bankruptcy. But businesses can file for Chapter 7 bankruptcy as well.

So what happens when a company files for Chapter 7 bankruptcy? If successful, the business's assets are liquidated. The money received from the liquidated items are distributed to the unsecured creditors. When these assets are liquidated, the remaining debts are wiped out by the courts. This leaves the owners of the business free to go on with their lives. But there is more than one type of business. There are corporations, partnerships, sole proprietors, limited liability partnerships, and more. And the bankruptcy rules, while similar, can be a little bit different.

For example, take the case of a company which is set up as a sole proprietorship. In this type of business, there is no distinction between you and your business. Your income is the business's income and your debts are the debts of the business. This means that if you file for Chapter 7 bankruptcy and have business assets, those assets can be sold to raise money to pay your creditors.

However, In reality, you have very limited control over which of your assets will be sold. Those decisions, for the most part, will be decided on by the bankruptcy trustee. For instance, assume that you are a sole proprietor and that you own a retail establishment. You may have inventory stock that, in theory, is probably worth a couple of thousand dollars. But, if the trustee decides that the cost to sell them is exorbitant, he may decide that it is not worth the effort to sell them. This leaves them in your possession. On the other hand, for other assets, he may may arrive at the exact opposite conclusion.

Regardless of what will or won't be liquidated, as part of the discovery proceedings, the bankruptcy trustee will go through all of your assets with you and make a determination which assets are worth selling. In many cases, his final determination will effectively put you out of business.

For example, if you own an auto repair shop and the trustee determines that the sale of much of your auto equipment and tools can effectively sold to bring in needed cash, he may have them seized and put up for sale or auction. In cases like this, with no equipment to carry on your business, you effectively no longer have a business to run.

There is a way to prevent this, however. And that is applying for an exemption. If the exemption is not granted, however, you are out of luck.

All in all, which assets you get to keep and which ones you forfeit is largely in the hands of the bankruptcy trustee.

Article Source: http://depositarticles.com/

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