A business Chapter 7 is the most common type of bankruptcy and often referred to as a straight bankruptcy. Under Chapter 7, you can quickly eliminate most if not all of the businesses unsecured debts by surrendering the assets. Unsecured debts are debts not secured with collateral such as your home.
Liquidation involves the sale of the businesses assets to pay what’s owed to the businesses creditors. Some assets that were used as collateral such as your home or car may be exempt from sale if they were used as collateral, but all nonexempt assets may be included in the liquidation process such as equipment and inventory.
Basically a Chapter 7 is where you give all of the businesses property (that is not exempt or allowed to withheld from the bankruptcy) to be sold to pay any creditors. After that is done, the debts (with exception) are discharged, or no longer owed.
If your Chapter 7 bankruptcy is successful, you receive a discharge that releases you from personal liability for your debts.
Do you have a business, LLC, or corporation and need relief from creditors right now? Do you want to keep your business or corporation to make it viable again in the long term? A new option can help you now! Filing for Chapter 11 allows a firm to remain operational and be able to renegotiate its debt and create a repayment plan over a specific set amount of time.
You can also take other additional steps in order to return profitability to your business. In the bankruptcy laws, there is a Subchapter 5, and it's a new option that took in effect in February. This option is for businesses with debt below a specific threshold (with some limitations). From now on through next March, the cap it has is around $7.5 million. (Recently passed legislation raised it from $2.7 Million for one year).
This basically means that the bankruptcy process will be much faster and less expensive for small businesses. It’s less expensive because it eliminates the costs and paperwork requirements, as well as allowing the owners to retain their interest in their own business, among other things from the typical Chapter 11 cases.