The news is littered with stories about businesses filing for bankruptcy these days, specifically brick and mortar stores. The explosion of online shopping has hurt brick and mortar stores more than many thought would happen. Because of the ease and accessibility of online shopping, companies are forced to file for bankruptcy. Here's what happens when businesses file for bankruptcy.
When a business comes to the difficult conclusion that it's time to file for bankruptcy, they must do so by filing a petition and schedules. These documents provide details regarding the company's assets, liabilities, income, expenses, leases, executory contracts and a statement about finances. Once the petition is filed, an automatic stay goes into effect, which forces the company's creditors to end their collection actions against the company.
When a business is organized as a sole proprietorship, it operates as an extension of the owner. In this case, the owner of the business would file for personal bankruptcy using Chapter 7. A trustee is assigned to the case who will see all of the owner's non-exempt property. The cash acquired from the sale is used to pay the creditors of the business owner. When the process is complete, a bankruptcy judge will discharge the business owner's remaining debts.
When a business is organized as a corporation, limited liability company or partnership, it operates separate from the owners. A company filing bankruptcy in this situation must do so by filing Chapter 7. The company cannot have one of the owners file for personal bankruptcy. The company will not have its debts discharged. A trustee will be assigned to the case to sell the company's assets in order to pay the debts, but once complete, the corporation or partnership no longer exists legally.
Is your business headed for a bankruptcy filing? Contact our Nashua, New Hampshire, firm today to discuss your situation and what steps need to be taken for a Chapter 11 or Chapter 7 filing.