Missouri-based Rooney Trucking Inc., filed its Chapter 7 bankruptcy petition on May 2, 2022, citing fuel, labor, and cuts by the U.S. Postal Service as precipitating factors. The Polo, MO-based company ceased operations on April 30, 2022, after almost 67 years in business.
Chapter 7 is the most-used bankruptcy chapter for individuals filing personal bankruptcy but can also be appropriate for commercial filings.
Depending on the size of the business and other elements, Chapter 7, Chapter 11, or Subchapter V might be the most appropriate bankruptcy chapter. At Licata Bankruptcy Firm, we guide businesses of all sizes through the complexities of filing for bankruptcy in Missouri.
Bankruptcy Filings Recently Increase
After two years of fewer filings, bankruptcy cases are trending up (although still below last year). commercial bankruptcy cases jumped 26% between February and March 2022. Between worker shortages, supply chain issues, and expired stimulus funds, more businesses may find themselves in financial peril.
In Fiscal Year 2021, 16,140 business bankruptcies were filed in the U.S. Almost 60% of those petitions were Chapter 7. There were 108 Chapter 7 business bankruptcy filings in the Eastern and Western districts of Missouri. For context, the highest point in filings was 2009 with 655 Chapter 7 business bankruptcies.
Businesses that want to reorganize and try to become profitable again use either Chapter 11 (larger businesses) or Subchapter V (smaller businesses). A business that wishes to close its doors permanently can do so under Chapter 7.
How Chapter 7 for Businesses Works
Under Chapter 7 of the U.S. Bankruptcy Code, "the company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company's assets, and the proceeds are used to pay off debt.
Filing a Chapter 7 business bankruptcy does not eliminate personal obligations on business debts for partnerships, corporations, and limited liability companies. You can file Chapter 7 to shut down and liquidate a business, but you will not receive a discharge or be able to use exemptions to protect your assets. The bankruptcy trustee can use your assets to pay creditors to the extent possible.
Partners or owners wanting to erase personal financial commitments must file a separate personal Chapter 7 bankruptcy.
A sole proprietorship, however, is not a separate legal entity. A Chapter 7 bankruptcy in that case can erase both business and personal debts.
A business filing for Chapter 7 bankruptcy can expect the following:
- No business asset is exempt. All can be sold to pay creditors.
- A full accounting of profit and loss and other financial statements are provided to the court.
- A 341 meeting of creditors is conducted. The assigned trustee will ask the debtor questions. Creditors have the right to attend and ask questions about financial matters.
- Debt is typically discharged (erased) within four months.
Chapter 7 bankruptcy requires successfully passing the means test when filing personally (consumer bankruptcy). In the means test, the filer’s income needs to be below the median income for similarly sized households in the state. A business bankruptcy under Chapter 7 has no means test requirement. If most of the debt is personal, however, you will not be able to file as a business.
Business bankruptcy is one in which the majority of the filer's debt is business debt. A bankruptcy filing for a partnership, limited liability company, or corporation is easily classified as business bankruptcy. Sole proprietorships are trickier. Classification as a business or consumer bankruptcy hinges on whether the majority of the debt is consumer (personal) or business-related. If a debtor has more than 50% non-consumer debts, then the debtor is eligible to file as a business under Chapter 7 bankruptcy. A sole proprietor may be able to discharge personal and business debt.
Answers for Your Bankruptcy Questions
Owning a business can be rewarding but also challenging. About 50% of businesses fail after five years in business. Bankruptcy is an available option. Since 2008, Licata Bankruptcy Firm has helped the people of Southwest Missouri move beyond their financial struggles.
Our attorneys at Licata Bankruptcy Firm can answer your questions about business bankruptcy. Call (417) 213-5006 or send us an online message to schedule a consultation.