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Law Offices of Nicholas Gebelt

Will I Still Owe Creditors Who Have Not Been Paid In Full After A Chapter 7 Business Bankruptcy?


If you have a business that’s a corporation, that corporation is a separate person. It has its own assets, its own expenses, its own income, and its own debts. As long as you kept a clear separation between your business funds and assets and your personal funds and assets, maintained the usual corporate niceties, and you’ve signed loan documents only as the President of the Company, then you probably do not have personal liability.

However, it’s very common for a bank to ask you to sign for a loan as the President of your company, and also sign a personal guarantee. In that case, if the liquidated assets aren’t enough to satisfy the debt, then the bank has the right to come after you personally.

In addition, if the bank can pierce the corporate veil, then the bank can come after you personally if it is not paid in full through the Chapter 7 liquidation.

If you have a business that’s not a corporation, but instead­ is a partnership, then unless the bank is paid in full through the liquidation, you will have personal liability for the unpaid debt. Unlike a corporation or an LLC, a partnership is not a separate entity. It’s simply the partners as a group. Each partner is liable for the debts of the partnership.

Is A Chapter 7 Bankruptcy Possible For My Business Partnership?

Chapter 7 bankruptcies are possible for business partnerships, but they are usually not recommended because the partners are going to be personally liable for any debts if the debts are not paid in full.

When the Chapter 7 Trustee takes control of the business’s assets and liquidates them, that Trustee is going to take a fee out of the proceeds, based on the amount distributed to the creditors. In addition, the Trustee must use the proceeds to pay for an accountant, an attorney, and perhaps other professionals.

Consequently, it is quite likely that there won’t be enough money left over to repay all outstanding debts. In that case partners will still have personal liability.

If the partners are confident that they can generate enough cash to pay back creditors by liquidating assets themselves, that may be the better option. It eliminates the fees and expenses associated with the Chapter 7 bankruptcy. In fact, there may even be a surplus to share among the partners.

Could your partnership declare Chapter 7 bankruptcy and still wind up with a surplus of cash? It’s conceivable, but not very likely. In sum, I do not recommend Chapter 7 for partnerships except in very special circumstances.

For more information on Unpaid Creditors In Chapter 7 Business Bankruptcy, a Free 20 Minute Phone Strategy Session is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.

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