Business Debt Discharges: Do They Ever Happen?
Many business owners do not fully understand how bankruptcy discharges work for corporations, and whether discharges are even possible when businesses file for bankruptcy. If you are one of the owners of a business, you may know that Chapter 7 bankruptcy works very differently for businesses (compared with individuals) when it comes to a bankruptcy discharge. Unlike individual debtors, businesses do not have debts discharged in a Chapter 7 case since the business closes and there is no longer an existing entity for creditors to pursue. However, this distinction between individual and business bankruptcies is not the same in reorganization bankruptcy cases.
In business reorganization bankruptcies, the business debtor can be eligible to have remaining business debts discharged at the end of the terms of the repayment plan. An experienced West Palm Beach bankruptcy attorney can explain in more detail.
Chapter 11 Discharges
Businesses filing for traditional Chapter 11 bankruptcy cases can have debts discharged. Under Section 1141(d)(1) of the US Bankruptcy Code, once a Chapter 11 plan is confirmed, and the debtor meets the terms of the repayment plan, then pre-confirmation debts can be discharged.
Subchapter V Discharges
As a subchapter of Chapter 11 bankruptcy, Subchapter V bankruptcy cases can also allow a small business debtor to have remaining and eligible debts discharged at the end of the repayment plan period.
Chapter 12 Discharges
Although Chapter 12 bankruptcies are only available to family farmers or family fishermen, these types of bankruptcy cases are also a type of small business reorganization bankruptcy through which the business can receive a discharge. Under US bankruptcy law, a Chapter 12 debtor “will receive a discharge after completing all payments under the Chapter 12 plan.” Depending on the circumstances, a Chapter 12 debtor — unlike business debtors in other types of bankruptcy cases — can be eligible for a hardship discharge.
Business Liquidation Bankruptcies Do Not Result in a Discharge
As we noted above, corporations and other types of businesses that file for liquidation bankruptcy under Chapter 7 do not receive a discharge, while individuals filing under Chapter 7 can have eligible debts discharged.
The exception to note is a Chapter 7 bankruptcy filed by a sole proprietor. In this type of case, the individual business owner (the sole proprietor) and the business are not distinct entities, and thus both business and consumer debts are included in the bankruptcy case. And, the debtor can have debts discharged as another consumer would be able to expect.
Contact a West Palm Beach Bankruptcy Lawyers Today
While it can be difficult to understand how discharges work for businesses, and when businesses cannot be eligible for bankruptcy discharges, one of the experienced West Palm Beach bankruptcy attorneys at Kelley, Fulton, Kaplan & Eller can answer any questions you have. Once you are ready to file, we are here to assist you with your case. We represent businesses in South Florida with a wide range of bankruptcy cases, including Chapter 7, Chapter 11, and Subchapter V cases. Contact us today to learn more about the services we may be able to provide to your business.
Sources:
law.cornell.edu/uscode/text/11/1141
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics
