The “small business” is suffering in today’s economic climate. Many have debts that are insurmountable. The “owner” has often also personally guaranteed the debt and is facing bankruptcy.
The question then becomes whether the business entity should file for chapter 7 as well?
Maryland Bankruptcy Attorney Brett Weiss has a short list of reasons why he thinks a corporation or LLC will end up using a chapter 7 bankruptcy. His article can be found here.
The three in short form are as follows:
1. The attorney who suggests using a chapter 7 bankruptcy for the LLC or Corporation doesn’t understand that a bankruptcy discharge is not available for the entity.
2. If tax debt would be paid first from assets that a chapter 7 trustee would “gather” thereby preventing personal tax debt in the future. The common scenario in the regard is the LLC or Corporate entity that owes employment tax, that may later be assessed as a trust fund recovery penalty against the owner.
3. For purposes of “fairly” distributing assets in an attempt to reduce the chance that a creditor will continue collection activity against the entity.
The process of determining who or what should file for bankruptcy is rarely simple. If you are associated with an LLC or Corporation with significant debt, contact an experienced bankruptcy attorney.