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Which Business Debts are Discharged in Chapter 7 Bankruptcy

Many of the business financial obligations that generate entrepreneurs to declare personal bankruptcy can be released through a Chapter 7 personal bankruptcy.  When a debt is “discharged” it means that the debtor is no longer accountable for spending it once the debtor’s personal bankruptcy situation is finish.  After the trustee offers debtor’s nonexempt real assets and disburses the earnings among the creditors, then the bankruptcy court discharges any amount that continues to be overdue on the financial obligations when the debtor’s situation finishes.

Generally, Chapter 7 bankruptcy discharges only a debtor’s personal liability for debt.  If the debtor owns a Limited Liability Partnership, Corporation or Limited Liability Corporation, the business debts of such incorporated business structures never becomes to his/her personal liability.  In certain cases, the incorporated business owner guarantees the business debts and pledges his/her real assets as collateral becomes a personal liability to the owner.  Here, the creditors can claim their debt from the owner if there are insufficient business assets to repay the debts.

Following are some general types of business debts that are discharged in Chapter 7 personal bankruptcy proceedings:

  • Credit card payment invoices
  • Lawsuit judgments for compensation payments
  • Outstanding medical bills
  • Unsecured business debts of a sole proprietor such as debts to suppliers, outstanding payments to consultants, accountants, counsels or architects
  • Lease or contract obligations of a sole proprietor including equipment leases, residential and commercial leases
  • Promissory notes and personal loans

In the case of secured business debts, the creditor acquires the collateral security if there is a default.  If the debtor owes more than the value of the security, the deficient amount becomes a debt and it can be discharged in Chapter 7 bankruptcy.

There are certain debts that survive in Chapter 7 personal bankruptcy.  Following are some common types of such surviving debts:

  • Domestic Support: Domestic service bills are non-dischargeable, as well as alimony and also child support.
  • Liability from Certain Wrongdoing: Debts owed intended for willful in addition to detrimental injuries wherever loss as well as restitution have been granted within a legal action intended for accidental injury as well as loss of life are usually non-dischargeable.  Furthermore, the debtor’s discharge does not conclude the liability coming from driving a vehicle though intoxicated.
  • Criminal Penalties along with Restitution: Criminal fees usually are not discharged.  Also, certain criminal restitution payments tend to be non-dischargeable.
  • Certain Taxes: Taxes without returns or late returns, evaded taxes and specific liabilities proposed for withholding taxes.
  • Student Loans: All student loans are not dischargeable.
  • Fraudulent Debts: Debts sustained by defrauding the creditor regarding debtor’s financial situation are generally non-dischargeable.  These debts are presumptively includes selected payday loans and expenses involving high-class items upon credit prior to bankruptcy.  Moreover, non-dischargeable are generally bad debts by fiduciary scams, embezzlement, or maybe larceny.
  • Loans to Pension Plan: Debts incurred from pension plan such as 401 (k).

Inside Which Business Debts are Discharged in Chapter 7 Bankruptcy