When Expenses Exceed Sales, You Eventually Run Out of Money – Chapter 7
What happens when your expenses exceed your sales? Eventually you run out of money (unless you’re the Federal Government). You can close your doors and move on right? Well, your creditors may have something to say about that. Chapter 7 provides a way for a business to close its doors, sell its assets and try to satisfy its creditors as much as possible.
In a Chapter 7, a bankruptcy trustee is appointed to sell all of the business assets and distribute the proceeds among creditors according to the priority rules established in bankruptcy law. However, be careful with this process. A business (e.g., LLCs and corporations) will not receive a debt discharge at the end of the process. Why? The remaining debt obligations are left in place to allow creditors the option to enforce personal guarantees or intervene in the event the company’s equity holders fraudulently conveyed the business assets to another entity or individual (including themselves).
So, what is the best way to avoid a Chapter 7…….”STAY IN BUSINESS” (yes, I borrowed from Captain Obvious for this statement).
Here are a few other things that may be of interest:
- Why Pen Tests Aren’t Always Enough | Stambaugh Ness
- Heading Towards the Cliff: Tax Update & Planning in Dynamic Times Part 2 | Stambaugh Ness (08/13 @ 2pm EST)
- Signs of a Poor Mezzanine Debt Lender – Avoid Costly Mistakes (attractcapital.com)
- Top Three Uses of Acquisition Financing Capital (youtube.com) (attractcapital.com)
As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com), Brad Leber (bleber@mpl-law.com) or anyone in our office with questions or comments.
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