Chapter 7 Bankruptcy for New Jersey Corporations
If you own a small corporation and are considering bankruptcy, it is important to remember that a Chapter 7 corporate bankruptcy is very different from a Chapter 7 personal bankruptcy. Chapter 7 bankruptcy for New Jersey corporations may be a viable option in some circumstances but will basically mean that your business will be liquidated and wound down and will no longer exist after the bankruptcy case has concluded.
It is equally crucial to remember that the corporation will be required to retain an attorney to represent it throughout the Chapter 7 bankruptcy process—while in the personal context, a capable bankruptcy attorney is valuable, but not required.
What Happens in Chapter 7 Corporate Bankruptcy?
In Chapter 7 corporate bankruptcy, the business owners stop operating the business and hand the entire business over to the trustee for complete liquidation. No exemptions apply to protect a portion of the business property in a Chapter 7 bankruptcy for New Jersey corporations, as they would in a personal filing under Chapter 7.
The bankruptcy trustee will use the funds obtained from liquidating the corporation’s assets in order to pay all creditors to the extent possible. As is the case with a personal Chapter 7 bankruptcy, all debts of the corporation will be discharged following the conclusion of the case. The corporation’s creditors will have no additional recourse against the corporation, as it will no longer exist.
A Chapter 7 corporate bankruptcy may be advantageous when:
- The business owner is not personally liable for the corporation’s debts,
- The business owners do not wish to go through the trouble of selling the business’ assets themselves, and are willing to accept that the trustee will likely obtain a lower value for the assets upon sale,
- A complete liquidation of the business is acceptable.
The corporation will generally pay the same fees to the bankruptcy court as are applicable in a personal Chapter 7 bankruptcy case, and the trustee will similarly receive a commission based on the value of the assets that are sold.
Can a Chapter 7 Personal Bankruptcy Help?
If a corporate business owner is considering filing for liquidation-type bankruptcy under Chapter 7, it is important to remember that he or she will remain individually liable for any debts to which personal liability attaches, such as where the business owner has personally guaranteed a loan. If this is the case, the process that applies in the case of Chapter 7 bankruptcy for New Jersey corporations may not be the best alternative.
Instead, the business owner may wish to file as a debtor in a personal Chapter 7 or Chapter 13 proceeding in order to eliminate his or her own personal liability for the debts.
If the debtor is the sole owner of the corporation, he or she may be able to accomplish both goals through filing for personal bankruptcy. In this case, the trustee in the personal case may liquidate the assets of the corporation, after which the corporation will cease to exist. The business owner’s personal liability is eliminated through the Chapter 7 discharge, and, because the corporation itself no longer exists, it similarly cannot be held liable for paying the debts at issue.
Calling a New Jersey Corporate Bankruptcy Attorney
Chapter 7 bankruptcy for New Jersey corporations is only an option if the corporation retains a bankruptcy attorney. A New Jersey bankruptcy attorney will represent your interests as a business owner throughout the case and will also provide guidance as to if and when a personal Chapter 7 bankruptcy may be advisable in order to fully protect you from future liability.