What Happens to Business Assets in a Chapter 7 Bankruptcy?
When you own a small business and file a Chapter 7 bankruptcy, you would probably be concerned about what is going to happen with your business assets. If your business is not a corporation or a limited liability company and is a sole proprietorship, all the business assets legally belong to you. You are also liable for all outstanding debt that is owed to creditors by your small business.
Similar to a personal bankruptcy you have to list all your assets and debt in your bankruptcy documentation. Protecting and keeping ownership of certain assets will depend on whether the assets are exempt or nonexempt.
Non-Exempt Business Assets
During a Chapter 7 bankruptcy proceedings, the bankruptcy trustee will sell your nonexempt property and other nonexempt assets and use the proceeds of the sale to pay creditors. This is a liquidation. All business assets that you cannot claim as exempt will be put up for sale by the bankruptcy trustee in exchange for discharge of most of your business debt and to pay creditors.
Claiming Business Assets as Exempt
Certain property, usually up to a certain value is exempted by each state. Certain states allow federal exemptions instead of the state exemptions. When a business asset falls within the exemption criteria, you can claim it and retain possession of the asset.
Here are some common types of exemptions that you may use to protect certain assets:
Specialized tools that are specifically utilized by your business can be claimed as exempt by some state laws and federal bankruptcy exemptions. You are allowed to claim up to $2,175 in tools of your trade or professional books under the federal exemptions. This may seem very little but the tools and professional books are used (probably for many years) and are specialized and may not be of value or use to other people and the bankruptcy trustee may not get a good price during the sale. To give you an idea of the value, you should conduct an appraisal before you file for bankruptcy and you will have proof of the amount that you are claiming exemption for. Certain states have a tools of the trade exemption much higher than the federal exemption amount.
Certain states have wildcard exemptions that allow you to protect equity in specific types of property. You may be able to apply the wildcard exemptions to protect your business assets.
If you are concerned about what will happen to your business assets in a Chapter 7 bankruptcy, speak to our business debt relief lawyers today. Your initial consultation is free.