This page was written, edited, reviewed & approved by Emil J. Fleysher following our comprehensive editorial guidelines. Emil J. Fleysher, the Founding Partner, has 15+ years of legal experience as a bankruptcy attorney. Our last modified date shows when this page was last reviewed.
When a business is struggling with overwhelming debt and no longer has the ability to stay open, Chapter 7 bankruptcy may offer a way to close the doors legally and responsibly. This process is used to stop operations, sell off the company’s assets, and apply the proceeds toward paying creditors. It’s meant for businesses that cannot recover and want a clean, final break from their financial problems.
Fleysher Law Bankruptcy & Debt Attorneys helps businesses understand what to expect from a Chapter 7 bankruptcy filing and how to move through the process while protecting what matters most. We assist with every step, from gathering documents to explaining how the bankruptcy court handles the case.
Whether you operate a limited liability company, a partnership, or a corporation, we’ll help ensure proper closure, legal compliance, and clarity on how the process affects both business owners and personal assets.
Chapter 7 business bankruptcy is a legal process under the bankruptcy code that allows a company to close permanently, sell off all its assets, and use the funds to pay off as many creditors as possible. Unlike personal bankruptcy, which may offer a chance to keep certain property or restructure debt, Chapter 7 for businesses leads to full shutdown and business closure.
This type of bankruptcy filing is best for businesses that have no way to continue operations and want to avoid lawsuits, tax issues, or unpaid bills piling up. The process begins with submitting bankruptcy paperwork to the bankruptcy court, after which a bankruptcy trustee is appointed to manage the case.
There is no means test for business cases, and once assets are sold and remaining debts are handled, the business no longer exists. Chapter 7 gives the business a final and legal end through orderly business liquidation.
The biggest difference between business Chapter 7 and personal Chapter 7 is that individuals may get a debt discharge, while businesses do not. In a personal bankruptcy case, the goal is to give someone a fresh start by clearing most of their personal debt and protecting certain personal assets through exemptions. However, in a business case, there is no discharge, and once the company’s assets are sold, the business simply closes and cannot continue.
Another difference is that individual debtors may be allowed to keep working or own property, while a business that files Chapter 7 must stop all operations and lose control of its remaining property. The bankruptcy trustee takes control of the entire process to ensure fairness for creditors. Also, in most cases, individual debtors are eligible only after passing a means test, which does not apply to businesses.
Businesses often choose Chapter 7 over Chapter 11 when they know reorganization isn’t possible and the costs of continued operations would only increase losses. While Chapter 11 allows companies to keep running and restructure their company debt, it requires a detailed plan, more time, and ongoing expenses that many failing businesses can’t afford.
In contrast, Chapter 7 offers a quicker and more final resolution. If the business has no continued operation value or hopes of attracting new funding, liquidation through Chapter 7 helps stop creditor lawsuits and creates a clear path to business closure. This option is common when there is little left to salvage or when the business is heavily behind on debts.
Chapter 7 can apply to many types of businesses. However, specific rules apply depending on the business structure.
To file for Chapter 7, the business must be a legally recognized entity, such as a corporation, limited liability company, or partnership. The business must be insolvent, meaning it cannot pay its debts as they come due. There is no means test for businesses, unlike with individual debtors. However, the business must file for bankruptcy in the district where it operates or is registered.
The company should be inactive or prepared to close, and all financial records must be provided. The court will look at the company’s assets, liabilities, and financial activity before accepting the case.
| Business Type | Can File Chapter 7? | Assets Affected | Discharge Available? |
|---|---|---|---|
| Sole Proprietorship | Yes | Includes personal assets and business property | Yes (for individual) |
| Limited Liability Company (LLC) | Yes | Only the company's assets | No |
| Corporation | Yes | Only business property | No |
| Filing Type | Who Initiates | Common Scenarios |
| Voluntary | Business owner or managing member | The owner wants to end the business due to debt problems. |
| Involuntary | Group of creditors | Used when creditors force a business entity into bankruptcy to recover money. |
Once the case begins, the court assigns a bankruptcy trustee to manage the bankruptcy case. The business must turn over all financial records, contracts, and access to physical property. The trustee then oversees the process of liquidating assets, settling claims, and notifying creditors about the business closure.
This process does not involve restructuring or continued operation. Instead, it ensures fair treatment for creditors and a clear legal conclusion for the business.
The bankruptcy trustee takes control of the debtor’s assets, sells property, and distributes funds to creditors in a specific order based on the rules in the bankruptcy code. The trustee must act fairly and efficiently to collect and convert nonexempt property into cash.
The trustee also handles paperwork, reviews claims, and ensures all steps follow bankruptcy laws. If the trustee finds improper transfers or fraud, they may initiate litigation to recover assets.
The trustee will inventory all property owned by the business and begin selling assets to pay secured creditors first, then unsecured creditors. If any funds remain, they are applied to the remaining debt or returned to stakeholders.
This process may include physical goods, intellectual property, vehicles, and accounts receivable. All asset sales must comply with court rules, and the goal is an orderly business liquidation.
The trustee will send formal notices to all known creditors, informing them of the bankruptcy and deadlines to file claims. At the same time, the business must stop all work, terminate leases, and close all accounts.
Vendors, landlords, and other partners are informed of the bankruptcy filing, and the business must assist the trustee with access to locations and records. This ensures full and proper business closure.
Most Chapter 7 business cases are closed within a few months, depending on the size of the business and the amount of assets to be sold. Simple cases may close within 90 days, while more complex liquidations can take longer.
Once all tasks are complete, the court enters a final order and officially closes the case. At that point, the business no longer exists, and all the company’s assets have been distributed.
Not all debts are wiped out. Understanding what remains is key.
Secured creditors have a security interest in property, such as loans tied to equipment or vehicles. These are paid first from asset sales. Unsecured creditors like suppliers or credit card companies are next in line and may receive partial payments or nothing at all.
Secured debts are only cleared after the asset is sold and the proceeds are applied. If not enough funds exist, the remaining debt may still be owed, depending on guarantees.
Some creditors may still seek payment if the debt was personally guaranteed. Others may sue a corporate officer or business partners if fraud is alleged. Certain taxes, penalties, or criminal fines may also survive the bankruptcy case.
Each case is fact-specific, and a qualified bankruptcy attorney can explain what debts truly remain.
If a business owner personally guaranteed any loans or contracts, those debts become personal debt and can survive the Chapter 7 case. The business closure does not protect the owner from being personally liable for those obligations.
In those situations, the owner may need to consider personal bankruptcy or negotiate directly with creditors.
Owners often wonder how Chapter 7 will directly impact them.
In corporations and limited liability companies, owners are not usually personally responsible for the company’s unpaid bills. However, if they co-signed a loan or misused funds, they may face legal action.
Sole proprietors are always liable for both business and personal debt since there is no legal separation.
Business bankruptcies do not appear on personal credit unless the owner is a sole proprietor or has personally guaranteed debts. However, lenders may review the business history if the owner applies for future loans.
Rebuilding after business closure is possible, but new ventures may face tougher approval standards until trust is regained.
Selling assets during liquidation may trigger taxes on capital gains or canceled debt. The bankruptcy trustee and a tax advisor can help assess which income is reportable.
Some debts may be excluded from taxable income, but certain circumstances could still create tax bills after bankruptcy ends.
Chapter 11 is for businesses that still have potential but need to restructure. Chapter 7 is for those beyond recovery.
Chapter 11 allows a business to stay open, file a repayment plan, and negotiate with creditors while working toward profit. It is complex, expensive, and takes longer to resolve.
In contrast, Chapter 7 is faster and cheaper. It is a better option when debt is overwhelming and no fresh start is possible through reorganization.
If the company still has value, clients, or contracts that can support growth, Chapter 11 might be a smarter route. It offers more time to settle debts, adjust leases, and bring in new funding.
For small businesses with solid leadership and funding potential, reorganization may lead to survival. But without those pieces, liquidation often makes more sense.
Chapter 11 requires legal filings, financial disclosures, and hearings, which makes it costly. Many small business owners can’t afford the time or stress it brings.
Chapter 7 is simpler and more final. There are no long-term plans, and once the assets are gone, the business entity ends. For companies with no path forward, that finality is often a relief.
1. Can I Include Personal Debts When Filing for Bankruptcy for My Business?
Not usually. Filing for bankruptcy for your company does not include personal obligations unless you are a sole proprietor. In those cases, both business and primarily consumer debts may be listed, but this depends on your individual circumstances and how your business finances were structured.
2. Can the Court Discharge Most Debts After Liquidation?
In business cases, there is no automatic discharge. Only individuals can receive a discharge release under Chapter 7. If the court finds that fraud or misconduct occurred, certain debts may survive even in personal bankruptcy cases.
3. What if My Business Owed Money to Family Members?
Family members are treated like other creditors. If they lent money to your business, they can file a claim, but they must follow the same rules. Payments made to family members before filing bankruptcy may be reviewed and possibly reversed by the trustee if they were unfair to other creditors.
4. Does the Bankruptcy Process Protect My Private Coffers?
If you operated through a corporation or limited liability company, your private coffers are generally safe. But if you co-signed business loans or made personal guarantees, your personal assets may be at risk. Always review this with a qualified bankruptcy attorney.
5. Can a Creditor File an Adversary Proceeding During Business Bankruptcy?
Yes. Creditors may initiate an adversary proceeding to challenge how assets are handled or argue that certain debts should not be discharged. These are handled in United States Courts as part of the larger bankruptcy case and require detailed legal arguments.
If your business is closing and you’re facing serious debt with no recovery in sight, it may be time to consider Chapter 7 bankruptcy. At Fleysher Law Bankruptcy & Debt Attorneys, we guide Florida business owners through each step of the bankruptcy process, from evaluating options to filing the proper documents and ensuring proper closure of your business.
We understand that making this decision isn’t easy. Whether you run a small business or a larger operation, we’ll help you meet legal requirements, protect your rights, and avoid risks to your personal assets. We answer your questions, support you through the court process, and make sure your case is handled correctly.
Call today for a free consultation. Let us help you find the best path forward for your company, your finances, and your future.
Emil specializes in consumer bankruptcy, debt settlement, and mortgage modification, offering a holistic approach to solving mortgage and debt problems. Emil listens to clients, understands their circumstances and goals, and helps them make the right choices by presenting all options and contingencies.
He is dedicated to helping South Floridians regain their financial freedom from overwhelming debt caused by high interest credit cards, bad mortgage loans, and uninsured medical expenses.
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