Although it can be a rewarding experience, running a small business is full of many risks. In turn, there are a variety of reasons outside of the owner’s control that a company may struggle to stay afloat. If you find that your organization is only falling deeper into debt, it might be a wise choice to cut your losses and close your doors. Bankruptcy law allows limited liability corporations (LLCs) the option of filing a Chapter 7 bankruptcy to gain a fresh start. Below is an overview of how this works.

How Does Chapter 7 Bankruptcy Work for an LLC? 

Filing Process 

Chapter 7 bankruptcy is a liquidation bankruptcy. This means it’s designed to liquidate assets and use the proceeds to help pay off creditors. It’s a good idea to secure the help of a bankruptcy law attorney to protect your rights and ensure the correct procedure is followed. To begin the bankruptcy process, you must fill out and file a petition, including a schedule of your company’s assets and liabilities, schedule of current income and expenses, schedule of leases and executor contracts, and financial statement.

Next, a bankruptcy trustee will be appointed to represent your creditors and manage the liquidation and sale of your business’s assets. Bankruptcy law requires that you disclose all of your creditors and assets so the trustee can submit a notice of your filing and accurately administer your estate. Both unsecured and secured creditors will be paid based on priority until nothing remains, upon which the estate will be closed. 

Dissolving the Company

After your company’s debts have been eliminated, you’ll need to take additional steps to dissolve the business. Even if it’s officially closed, an LLC will still be recognized by the state as an operating business subject to fees and taxes until it has been properly dissolved. In general, you’ll need to get the members of the LLC to approve of the dissolution and record it in writing, and then dissolution documents must be filed with the correct state agency. Then, you’ll want to make sure all your state taxes have been paid to avoid delays, and the IRS has been notified of the closure. 

Filing a business bankruptcy is a complex process that requires the knowledge and expertise of an attorney like Steven P. Ciardiello Esq, PC. Offering more than 30 years of legal experience, he has helped countless entrepreneurs in Hamden, CT, and the surrounding communities successfully move on from a debt-laden company to a new beginning. He is well versed in bankruptcy law and can get you on the path to financial freedom in a timely manner. Call (203) 248-8000 to schedule a consultation, or visit him online to learn more about his services.