Chapter 7 and a business wind-down

The basic framework

Chapter 7 generally involves liquidation by a trustee: nonexempt estate assets are administered and proceeds distributed according to bankruptcy law. Whether there are assets available for distribution is case-specific.

For a corporation or partnership, it is important not to import the discharge expectations associated with an individual debtor. The U.S. Courts explains that a Chapter 7 discharge is available to individuals, not partnerships or corporations.

Keep the legal entities separate

A business closing its doors, a company filing a case, and an owner filing personally are different events. Create a simple entity map for the first legal meeting: company names, ownership, bank accounts, asset titles, and personal guarantees. Ask which obligations and people would be affected by each possible step.

Prepare for a wind-down discussion

• What property does the business own, and what is leased?
• Which assets are subject to liens?
• What obligations concern employees, taxes, landlords, and customers?
• What documents and records must be preserved?