When a business is facing tough times but lacks a marketable product or service to fund a Chapter 11 Plan of Reorganization, it may be in the proprietors' best interest to file a Chapter 7 business bankruptcy. Another option, of course, if to simply wind the business down yourself, file articles of dissolution with the Secretary of State, and be on your merry way. However, without consulting with a bankruptcy lawyer, you may not have been aware of the many benefits to filing a Chapter 7 on behalf of your failing company, even though a corporation does not receive a discharge.
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1. Priority Creditors Are Paid First.
This is probably the most important aspect of filing a business bankruptcy for many individuals. The most advantageous scenario is when the corporation owes payroll taxes to the I.R.S., who can hold principal of the corporation liable for unpaid payroll taxes. The penalties for failing to remit such payments to the IRS are steep, and by preventing creditors from rushing to the courthouse steps to obtain a judgment and levy on your assets, you can pay off your government claims with an orderly liquidation by the Chapter 7 Trustee.
2. No Questions Liquidation
When you submit you business before the bankruptcy court, it pretty much shuts up all creditor questions regarding the dissolution of your business. Sure, you may have been able to save some money up front by simply winding down the business outside of bankruptcy; however, creditors will often questions how the business assets were liquidated, and may question the validity of certain sales. For instance, did the principals control the sale? Were there any underhanded dealings or insider deals going on behind creditors' backs? Did the business receive fair market value for all its assets? These are all questions a a creditor may ask, and rightfully so; however, when the Chapter 7 Trustee is the individual overseeing the sale of your business assets, creditors have no recourse against the individual for how the company's assets were liquidated and distributed.
3. Employee Wages
Nobody wants to shut the doors on a business while owing hardworking employees money for past performed services. However, if a creditor were to obtain a judgment and levy against our business assets, those employees will likely never see a dime of the money your business owes them. This is where a good bankruptcy attorney comes in, as he or she could file a Chapter 7 business bankruptcy on behalf of your business. Under the bankruptcy code, claims of past employees are given priority over the claims of general unsecured creditors; thus, any assets the trustee liquidates will first be used to pay off your company's former employees, up to $10,000.00 per employee.
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