When a company files for Chapter 7 bankruptcy, its assets are liquidated and the proceeds are distributed to its unsecured creditors. Once these assets are liquidated, the remaining business debts are eliminated, allowing the business's proprietors to move on with their lives. However, there are a variety of business structures, including corporations, partnerships, sole proprietorships, limited liability partnerships, etc. The bankruptcy regulations vary slightly for each of these.
There is no distinction between you and your business in the case of a sole proprietorship. Your income is the income of the business, and your liabilities are the liabilities of the business. This means that if you file for Chapter 7 bankruptcy and have business assets, you can sell them to pay off your creditors.
In actuality, however, the bankruptcy trustee will make the majority of the decisions regarding which assets can be sold. For instance, if you are a sole proprietor and own a retail store, your inventory may have a theoretical value of several thousand dollars. However, if the trustee determines that the cost of selling them does not justify the potential income, he may decide not to liquidate them. Therefore, they are left in your possession. For other assets, he might reach the opposite conclusion.
As part of the discovery process, regardless of what will or will not be liquidated, the bankruptcy trustee will review all of your assets with you and determine which assets are worth selling. His final determination will send you out of business in many instances.
For instance, if you own an auto repair shop and the trustee determines that the sale of a significant portion of your auto equipment and tools can effectively generate required cash, he may seize and sell or auction them. In such situations, if you lack the necessary apparatus to operate your business, you no longer have one.
However, there is a method to avoid this. And that is exemption application. However, if the exemption is denied, you are out of luck.
Which assets you get to retain and which ones you lose are largely determined by the bankruptcy trustee.""
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