Businesses that are experiencing overwhelming debt can choose to file for Chapter 7 bankruptcy. However, there are many different things to consider before you take action. The team at Gillman, Bruton & Capone can sit down with you and go over the pros and cons of Chapter 7 business bankruptcy in New Jersey so that you can make the best decision for your situation.

Benefits of Chapter 7 Business Bankruptcy

One benefit of filing for a Chapter 7 business bankruptcy in New Jersey is the ability to provide a business owner the means in which to close their business. Oftentimes, businesses have reached a point where they are unable to satisfy their obligations or make payroll. If a business filed a Chapter 7 bankruptcy, it releases them from those obligations.

Filing a business bankruptcy with an attorney will ensure that the individual owners and operators obtain legal advice required to peaceably close the business through legal processes. This contrasts with other ways which may cause collection to continue for many years after the business is no longer operating.

Another benefit of a bankruptcy filing is the ability to notify all the business creditors that it is no longer operating, ending any oppressive collection efforts.

How it Differs From Other Bankruptcy Options

Chapter 7 bankruptcy is a unique option available to businesses that do not intend to continue operating. There are alternatives, even for businesses that do not intend to operate, which include a New Jersey assignment for the benefit of creditors, which is the legal proceeding in state court in which business assets are liquidated and distributed to creditors.

Other alternatives include a Chapter 11 business bankruptcy or a Subchapter V bankruptcy. There are also circumstances in which business owners, as opposed to the businesses themselves, may seek relief either in Chapter 7, personal Chapter 11, or Chapter 13 bankruptcy.

A business would choose a Chapter 7 bankruptcy when they no longer intend to operate. They believe they can easily comply with the requirements of the bankruptcy code and are prepared for the investigation and information they must provide in the case.

A Chapter 11 bankruptcy is typically more expensive than the Chapter 7. That option is usually not available to businesses that do not have the income or assets to pay their creditors immediately or cannot afford the costs of reorganizing their business.

Disadvantages of Chapter 7 Bankruptcy for Businesses

A disadvantage of filing for Chapter 7 business bankruptcy in New Jersey is it results in the immediate closure of the business. Another disadvantage is the requirement that one or more of the business owners or operators is wholly involved with the proceeding.

Chapter 7 business bankruptcy is not appropriate if the Chapter 7 trustee would have to pursue owners or operators for collection of money or property that was distributed during the course of business operation.

How Long Does it Take?

The process of a Chapter 7 bankruptcy will be determined on a case-by-case basis. Once a case is filed, a trustee will be immediately appointed and a representative of the company will be asked to appear at a creditor’s meeting. That meeting might be approximately 30 to 45 days after the case is filed.

After that time, the trustee will take the time to review – and potentially liquidate – the assets of the company. In some cases, that can take as little as five to six months, and in other cases, it can last multiple years. An individual who decides to file on behalf of their business should understand the limited role they will have as the primary. The majority of the time is taken up by the trustee’s acquisition and liquidation of assets, and that may or may not require input from the business owner.

Common Issues with Chapter 7 Bankruptcy

There are some common issues that come up during bankruptcy proceedings – including instances where our firm is brought in after the case is filed by another attorney. The business might have made payments to individual owners or close parties to the business. In that case, a Chapter 7 trustee will pursue recovery of those payments through “clawback” options, under the laws relating to preferences for fraudulent transfer.

The individuals may also pay the “spillover effect” of business debt. Although the business itself may be closed, and its assets addressed in bankruptcy, the individual may have signed guarantees which indebt them if the business cannot repay it. Alternatively, they may be legally responsible for the debt to the business based on government statute to repay certain amounts that the business accrued in debt that are not repaid during the bankruptcy process. Because Chapter 7 bankruptcy typically does not pay any of the debt that is owed by the business when it is filed, it can often leave a spillover effect on the individual owners that should be carefully considered.

Discuss the Pros and Cons of a Chapter 7 Business Bankruptcy with a New Jersey Attorney

Each type of bankruptcy has its advantages and disadvantages for different situations or types of people. If you are considering a Chapter 7 business bankruptcy, one of our experienced New Jersey lawyers can talk to you about the pros and cons. Schedule a free case review now.