How Can Individually Owned Businesses File for Bankruptcy?


When  a sole proprietorship simply cannot continue to pay his/her debts a  Chapter 7 may be the best option. A sole proprietorship can include a  married couple owning the business together. It must be remembered that  when a sole proprietor files a Chapter 7 the person is filing the case.  So the filing is not limited to just the business debts and business  assets.

A Chapter 7 process generally  goes fast and results in a discharge of all or most debts. The process  works best when all information is disclosed on the Chapter 7 schedules.

All debts and all assets must be listed.


  1. Secured  debts are debts where property has been pledged as collateral. This can  be a car or truck that has been financed or perhaps restaurant  equipment that has been financed;
  2. Priority Debts have  been given a higher status by law that will survive the Chapter 7  discharge. These debts include payroll taxes; recent income tax debts;  and sales taxes; child support arrearages; and student loans.
  3. Unsecured debts are debts with no liens-such as credit cards; medical bills; past due rent and/or utilities, etc.
  4. Debts  that are co-signed and debts with someone else’s personal guarantee  have to be listed. The Chapter 7 does not discharge the debts to the  co-signer or the person or entity who has guaranteed the debt.


  1. The  Debtor must provide proof of federal income tax filings for the prior 4  years. An affidavit will be sufficient if the Debtor was not required  to file income taxes for one or more of the years.
  2. The  Debtor must provide proof of income for the last 60 days and some  evidence of income for the past 6 months. When listing income it must  include all income in the household such as a non-filing spouse.
  3. All  schedules filed with the case must be detailed and honest to provide  sufficient information for the trustee, creditors and the court.
  4. A list of any possible causes of action the Debtor may have;
  5. A Chapter 7 trustee is likely to require the production of bank statements for the last few months.
  6. If  an individual continues its business operations a Chapter 7 trustee may  require proof of insurance. This may come into play if the business is  high risk such as roofer or if the individual has employees.


  1. The  filing of a Chapter 7 imposes the powerful Automatic Stay against all  creditors including the IRS from taking any action to collect pre-filing  debts. It provides powerful immediate relief. The Automatic Stay also  prevents threatened repossessions and garnishments.
  2. The  cost including the filing fee and the lawyer’s fees are very reasonable.  The filing fee for a Chapter 7 is $335. Generally attorney’s fees are  flat and affordable.
  3. Individual business owners are  generally not required to fill out the Means Test. The exception being  if consumers debts (and home mortgages are considered consumer debts as  well as the balances on student loans) are greater than the business  debts.
  4. Chapter 7 cases can be filed very rapidly-sometimes the same day. This is not recommended but is available in an emergency.
  5. Unlike a Corporate Chapter 7 some debts can be reaffirmed. An example is a car note that is current and you want to keep it.
  6. It  is possible to redeem certain property that has a lien on it. For  example if $15,000 is owed on a car but its value is $8,000 one can  redeem it for its market value of $8,000.
  7. Leases and executory contracts can either be assumed or rejected.
  8. Unlike  a Corporate Chapter 7 the individual who files a Chapter 7 will get a  discharge. The Chapter 7 Debtor can often just continue its business  operations or start a new business. Also you can continue to use the  same name.

For more information on Bankruptcy For Individually Owned Businesses, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling today.

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