Incorporated businesses can file for Chapter 7 bankruptcy relief as a way to end business operations. There is no requirement under North Carolina law that a company file a Chapter 7 bankruptcy to shut down the business. In fact, the company can simply file Articles of Dissolution with the North Carolina Secretary of State and cease business operations. However, under this scenario, creditors can engage in a legal free-for-all and attempt to satisfy debts that are owed and seize their collateral.
There are a number of reasons that a business should file a Chapter 7 Bankruptcy to mark the formal end of business operations. These reasons include:
- Collection of Outstanding Accounts Receivable
- Collection of Potential Preference Claims
- Liquidation of Business Assets
The Chapter 7 Trustee is required to liquidate business assets and distribute the proceeds to creditors of the estate. In situations where there are sufficient funds to make a distribution to unsecured creditors, the Internal Revenue Service and the North Carolina Department of Revenue are paid before general unsecured creditors, which provides the opportunity for personal tax liability to be paid through bankruptcy estate.
A business does not receive a Chapter 7 discharge upon completion of the bankruptcy case. Instead, the case is closed by the Bankruptcy Court upon the filing of a final report by the Chapter 7 Trustee.
On the other hand, there are times when the filing of a Chapter 7 business bankruptcy is not in the best interest of the business owners. For example, if the business principals are liable for recovery of preferences in bankruptcy, it may be better to dissolve the company under state law and avoid a Chapter 7 filing.
If you are considering closing a business, you should speak to an experienced bankruptcy attorney to determine whether the business should file a Chapter 7 bankruptcy. Levy Law Offices represents businesses in Chapter 7 bankruptcies and state law business dissolutions. To schedule an initial consultation, please call Levy Law Offices at (919) 846-0125 or complete the contact form on the right-hand column of the website. There is a $220.00 initial consultation fee for a business bankruptcy consultation.