Can I discharge business debt with a Chapter 7 bankruptcy?

With many small busineses in trouble, owners are increasingly seeking out bankruptcy relief.

One of their immediate questions is can they discharge business debts through a personal Chapter 7 filing?

Generally, the answer is yes, if the business is a solo operation or a failed partnership.

In the case of a business that is incorporated, a personal Chapter 7 technically would discharge any personal obligation to pay the debts of the failed corporation or LLC. Such personal obligations are often found in the fine print of small business loan agreements, as these enterprises typically are not able to borrow without the owners giving such a guarantee.

If a majority of your debt is business debt, a Chapter 7 case can be filed without any need to pass the “means test” for eligibility. In simpler terms, this just means that business debtors can file bankruptcy under Chapter 7 even if their household income for the last six months was above the Massachusetts or New Hampshire average. This is a definite benefit for a married couple where only one spouse (the business owner) needs to file, while the other spouse still holds down a well-paying job.


By Doug Beaton

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