Some people come to see me to file a bankruptcy, and are operating or have operated a small business. If they are going out of business or have gone out of business, usually it is best to file a Chapter 7 bankruptcy, and seek a discharge of all the debts, a fresh start. Of course not all debts can be discharged; it's best to pay such "non-dischargeable" debts before a bankruptcy is filed if possible.

Otherwise, the owners of the business may have to pay such debts later, from income that they earn after the filing of the bankruptcy. Examples of such debts are sales taxes, payroll or so-called "trust fund" taxes, and certain other debts. But if you have a small business that you want or need to continue to operate, it can be a problem if there is significant "equity" or value in the business.

I was at a Meeting of Creditors yesterday, for a nice young couple that had to file Chapter 7. They had a small service business, that made them some good income, but it had few assets. The Chapter 7 Trustee had no problem with "abandoning" the business. Of course it helped that in addition to having few assets, the business was an LLC, and had it's own debts, which exceeded the value of its assets.

In other cases, it can be a problem. If you have a small business which has little or no debt, and say, has equipment, furniture and/or fixtures of a value of $10,000 or more, a Chapter 7 Trustee may want to liquidate or sell the assets, to raise money to pay your creditors, even if it puts you out of business. In such a case, you may need to file Chapter 13 (or Chapter 11) to keep your business, because otherwise the Chapter 7 Trustee will effectively shut you down.

But if your business is a "sole proprietorship" or "d/b/a," at least in Texas it is usually possible to claim the assets of the business as exempt, so that they do not have to be turned over to the trustee, at least if they are equipment or vehicles. If the business assets are primarily inventory or accounts receivable, then you may be back to filing Chapter 13 or other reorganization case.

It really is quite fact dependent, and you should review your particular situation with an experienced bankruptcy lawyer. If you are a resident of the Houston metro area, I offer a free consultation to discuss your situation. Call my office at 713-772-8037 to make an appointment or you can make an appointment.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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