Small businesses can file for a Chapter 11 or a Chapter 7 bankruptcy in Pennsylvania and all other federal bankruptcy districts. Chapter 11 is a reorganization plan that a business will file to reorganize its debts and business affairs, and hopefully continue to do business, even after the bankruptcy is ended. The business in a Chapter 11 ultimately wants to be discharged from the bankruptcy with a new lease on life and with the authority to continue doing business.
When a business files a Chapter 7, this generally signifies a business that is liquidating its debts and assets, and ceasing to conduct business. The Chapter 7 Trustee generally disposes of any available assets of the business and distributes the funds to creditors. The business stops operating and winds down its affairs. Appropriate papers may be filed to dissolve the partnership, corporation or other legal structure of the business.
Recently, in Maine a small solar energy company called Ascendant Energy filed a Chapter 7 bankruptcy in the bankruptcy court. The company listed $1,610 in assets and $781,957 in liabilities. Basically, this is considered to be a “no assets” debtor, and there is not expected to be any significant distribution to the creditors.
One important aspect of the case is that news reports indicate that the CEO and owner of the company also filed a personal bankruptcy with his wife. The filing was likely a Chapter 13, because it’s reported that the couple submitted a payment plan to keep up the mortgage on their jointly owned home. The case illustrates how in Pennsylvania and elsewhere the business debts can be eliminated through a Chapter 7 regarding the separate business entity, without imposing on the owner personally. The owner can file a separate, personal bankruptcy and reorganize the personal debt in a three to five-year payment plan.
Source: mainebiz.biz, “Solar energy company files for Chapter 7 bankruptcy“, , Aug. 4, 2014