Declaring bankruptcy under Chapter 7 can provide short-term relief for struggling businesses but also carries long-term consequences. Some key pros are that most debts can be eliminated within 3-6 months, preventing lawsuits from creditors. Businesses can also keep operating assets. However, major cons include severely damaged credit for up to 10 years, loss of luxury assets, and immediate dissolution of partnerships, corporations, and LLCs through mandatory liquidation of assets.

1. Pros and
Cons of the
Bankruptcy
Process under
Chapter 7
By Suzzanne Uhland
Image courtesy of Taber Andrew Bain at Flickr.com

2. If your business happens to be struggling with its
finances and has already spent a considerable
amount of time negotiating with creditors trying
to stop their harassment. If by any chance you
truly believe there is nothing left to do for your
company and you have already received
countless pieces of advice and help from
experts. It is time for you to declaring bankruptcy
for your business and adhere to the Chapter 7.

3. There are many businessmen who believe that
bankruptcy is the worst thing that could happen to
your company. Its credit will be dramatically
affected, its reputation will be in a way damaged
and its image will be by all means affected by this
decision. However, declaring bankruptcy when your
company’s options are limited and its resources
insufficient to face your debts might be a fantastic
idea. Especially if it is declared under the figure of
Chapter 7, where most of your business debts are
canceled in a short period of time (from three to six
months).

4. Like every decision in life, declaring bankruptcy
comes with both pros and cons that should be
considered and reviewed after making such an
important decision. In this article, Suzzanne
Uhland will share some of the most important
pros and cons that should be considered before
you declare your business is bankrupt.
Related: How to decide if 7 or 11 is the Right
Bankruptcy Choice

5. Pros of Chapter 7
Short waiting time: If you decide to declare your
small business bankrupt under the Chapter 7, you
can do so as an individual or a company. As
long as you are a sole proprietor you can adhere
to the Chapter 7 and your financial situation will
be solved in a period of time between three to
six months. This means that your company’s
credit life will be immediately affected, but it also
means that it won’t have to deal with creditors
anymore and will be free from most of its debts.

6. Pros of Chapter 7
Prevent a lawsuit: By not going bankrupt under
the Chapter 7 because you fear what may
happen to your company’s credit, you will for
sure expose it to legal processes that may also
hurt its reputation. Every missed payment,
defaults or repossessions have the chance to hurt
your company’s credit in a worse way. Solving
legal issues with different creditors may be more
difficult to explain and solve later than simply
accepting your company is bankrupt and need
to go through the Chapter 7 process.

7. Pros of Chapter 7
Keeping your assets: The majority of state exemptions will
allow your company to keep its business assets out of
bankruptcy. This means your company will be allowed to
keep everything it needs to keep operating after declared
bankrupt.
Credit and loans: Your Company’s credit will be hurt in a
way that you won’t be able to have access to a credit at
least three years after filing the Chapter 7. However, credits
may be what got you into bankruptcy in the first place, so
not having them can be rather useful. Also, there are other
ways for you to have access to a loan if that is what you
need. There are some lenders who specialize in lending
money to companies which have taken major steps into
financial difficulties.

8. Pros of Chapter 7
Recommended: Credit Availability and Credit Scores
After Bankruptcy
The biggest pro of going under the Chapter 7 is that
once you decide to go under this figure, your
company starts rebuilding your credit life. In other
words, you are taking the step your company needs
to organize its finances and start from scratch now
that the system is giving it a second chance.

9. Cons of Chapter 7
Credit report: As it has been said, declaring your
company bankrupt under the Chapter 7 is going
to affect its credit. This means that banks won’t
lend it any money and it won’t be able to make
considerable investments for a period that goes
up to 10 years unless it finds other ways to
finance those investments. Also, the more your
company applies to a credit the fewer chances
it has to get it. Most companies start to rebuild
their credit after bankruptcy once your company
gets a discharge of your prior debts.

10. Cons of Chapter 7
What you lose: You will for sure loose luxury
properties, since they won’t be covered by the
state exemptions and will be sold to pay
creditors. Also, all your company’s credits will be
canceled and the bankruptcy trustee will have
the last call on what is sold to pay for your debts.
Sometimes, even your future incomes are used to
pay for your current debts under the Chapter 7
figure.

11. Cons of Chapter 7
Waiting time between each Chapter: Be careful
not to declare your company bankrupt if it
actually can deal with its financial situation and
creditors. Once your company is done with the
Chapter 7 bankruptcy process, you won’t be
able to file another Chapter 7 or Chapter 13
application for it for the next six years.

12. Cons of Chapter 7
Company dissolution: If you go under the
Chapter 7 as a partnership, corporation, or
limited liability company (LLC), your business will
be immediately liquidated. This means that every
member will lose the chance to decide over the
company’s assets and they will immediately pass
to the bankruptcy trustee, which will sell off the
assets of the business in order to pay to its
creditors.