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What's the difference between a personal and business Chapter 7?

We've previously touched on the fact that there are several types of bankruptcies. Chapter 13 is for wage earners who wish to attempt to keep some assets and can commit to a repayment plan. Chapter 11 is for businesses that want to reorganize their debts but remain in business. Then there's Chapter 7, also known as a liquidation. As we've previously discussed, this kind of proceeding has certain requirements of individuals, such as a means test, in order to file as an individual.

People who own a business, however, may have a more complicated road to travel. Depending on the type of business structure, filing a personal bankruptcy may help with certain debts, such as any that were personally guaranteed by the owner. Debts taken on by the business that are not personally guaranteed, however, would not be affected by a personal filing. In such cases, the business would need to be dissolved, or a business chapter 7 filed. In dissolving the business, the company would pay those debts it could from the assets available, and then would cease to exist. This may be appropriate in certain circumstances, but sometimes a Chapter 7 will be better. In a chapter 7 bankruptcy, the LLC or corporation will hand its assets over to the bankruptcy trustee and he or she will liquidate them to pay the company's debts to the extent possible.

It is important to realize that one main difference is that, while chapter 7 personal bankruptcy will discharge most debts for the individual, a business Chapter 7 may not, so that if the company reopens, even with another name, the debts may still be extant. Those deciding how to wind up a business that is in debt may wish to consider the advice of an experienced Illinois bankruptcy lawyer.

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