Chapter 7 Bankruptcy for Small Business Owners and High-Income Earners

CMC Law specializes in bankruptcy filing for small businesses and small business owners.

Individuals can file bankruptcy based on corporate debts. In fact, small business owners receive certain benefits that do not extend to ordinary filers. Individuals who file business chapter 7 are entitled to a discharge of debt and to exempt a portion of property. Further, individuals who file bankruptcy based primarily on non-consumer debts are not subject to scrutiny under the means test. This means many individuals who ordinarily might not qualify for chapter 7 bankruptcy based on high income may still benefit from a chapter 7 discharge. The non-consumer means test exclusion is designed to encourage people to start businesses, with the knowledge that if the business fails, bankruptcy will allow entrepreneurs a second chance.

In contrast to individual business bankruptcy, Chapter 7 corporate bankruptcies are unusual. This is mainly because when corporations file bankruptcy, they are not entitled to a discharge. That means at the end of a business bankruptcy, the debt to creditors still exists, and any litigation regarding the debt can continue, at least in theory. The idea behind filing a business bankruptcy is that the debt to creditors is either settled or otherwise resolved, since the Trustee, an independent party, looks over the business finances and liquidates all corporate assets. After the Trustee insures all assets are liquidated, there is little reason to proceed with litigation against a corporation. Additionally, corporations are not entitled to exemptions like individuals. That means that, while individuals who file bankruptcy get to keep at least a portion of their assets, this benefit does not extend to corporations when they file chapter 7. Because of lack of a discharge and exemptions, business bankruptcies are rare, and often ill-advised. Also, nearly all business creditors require individuals to personally guarantee business debts. If you are personally guaranteed on business debt, there is ordinarily little reason for the business to file bankruptcy, as the creditors can simply pursue the individual guarantor for the deficiency.

In contrast, individuals can file bankruptcy based on corporate debts. Filing an individual business bankruptcy has many benefits. Individuals are entitled to a discharge and to exempt a portion of their property. Further, individuals who file bankruptcy based primarily on non-consumer debts are not subject to scrutiny under the means test. This means many individuals who ordinarily might not qualify for chapter 7 bankruptcy because of high income may still get a chapter 7 discharge. The non-consumer means test exclusion is designed to encourage people to start businesses, with the knowledge that if the business fails, bankruptcy will allow entrepreneurs a second chance.

Likewise, many high-income earners who would not pass the means test may yet qualify for chapter 7 if their debts are primarily non-consumer. Non-consumer debt is not defined by statute, but typically includes debt incurred for a business venture or with a profit motive. Non-consumer debts may include tax debts, personal guarantees on business debts, accident liability, medical bills, and criminal restitution. In some cases, student loan debt has been defined as non-consumer, but this is a case-specific inquiry.

CMC Law specializes in bankruptcy for small businesses and high-income earners. Many bankruptcy law firms incorrectly advise clients they do not qualify for chapter 7. Finally, in cases where individuals do not qualify for chapter 7, they may still be entitled to file bankruptcy under chapter 13, which still has many benefits.

Client Reviews
★★★★★
Charles is absolutely a brilliant attorney! He is a critical thinker and determined problem solver. He is very accessible, even via text. If he is in court, his ability to multi-task, you can feel safe and secure in knowing he is handling any issues or concerns. I entrust him with my future, he is a uniquely talented attorney who always challenges himself to achieve the absolute best outcome for his clients. Donna
★★★★★
I was very satisfied with Mr. Clapp services. He is a man of his word and did everything he told me he would. I would highly recommend him. Shernita
★★★★★
I came to Mr. Clapp by referral with a complicated case involving both personal and business debts that were out of control. Mr. Clapp evaluated the situation and gave me options that I was not even aware of. He knows his stuff, executed flawlessly, and I have been able to start over. I highly recommend Charles Clapp if you have debt or bankruptcy issues. Listen to his advice, he knows his stuff. I consulted with several other bankruptcy attorneys prior to retaining Mr. Clapp, and they did not have the same breadth of knowledge that Mr. Clapp brought to my case. Scott
★★★★★
I selected Charles Clapp to handle my bankruptcy based on his already positive reviews and I am glad that I did! He was very accommodating to my schedule and made my negative life experience positive. I was actually very surprised how easy he made the process. Life happens and it's great to be represented by someone that understand that!!! Stop your attorney search with Charles Clapp!!! Heather