Situations Where A Chapter 7 Bankruptcy Is Not A Good Option

2 August 2017
 Categories: Law, Blog

A Chapter 7 bankruptcy is also referred to as "liquidation" because you are liquidating every asset. When you own a business that is absolutely tanking, a Chapter 7 liquidation is an ideal solution. It helps you get out of debt, repay your creditors, and get out of business or start fresh. However, there are some situations where a Chapter 7 bankruptcy is not a good option, and your Chapter 7 bankruptcy lawyer will provide you with equally good, if not better, solutions.

Your Debts Exceed the Value of Your Assets

This is the perfect example of a major debt problem. You have two to six times the amount of debt to the amount of the value of your assets. Even if you file a Chapter 7 petition successfully, your assets will not pay off your creditors. You would be stuck with the remaining debt, and still forced to repay it. The only way this could still work in your favor is if you file a Chapter 7 and a Chapter 11 or 13 simultaneously in order to eliminate the rest of the debt.

You Used Your Home to Secure a Start-up Loan

When you cannot get a business loan any other way, you might think that using your home to secure a business start-up loan is a good idea. However, if you file for a Chapter 7 bankruptcy, you could be forced to sell your home to pay your debts! This is because your home is always considered an "asset", and using it to secure a business loan now puts the house at risk for loss in a Chapter 7 bankruptcy. Since you can longer sidestep this fact after the fact, your lawyer may advise you to file a different chapter of bankruptcy so you can keep your home but lose the debt.

Presumption of Abuse

If your income does not meet the guidelines set forth for a Chapter 7 bankruptcy, you could be perceived as a "bankruptcy abuser." This is someone who tries to avoid paying his/her debts even when his/her income is enough to pay something on the debts or his/her assets could pay the debt when liquidated. Your lawyer can recognize the potential for a judge to rule that this a "bankruptcy abuse" and then advise you what to do next. Usually, if you can prove that there are extenuating circumstances, such as a spouse or child with cancer in your household, you may still be able to file a Chapter 7. Contact a law firm, like Price James S & Associates, for more help.