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One of the reasons why debtors are highly encouraged to seek legal representation when filing bankruptcy is to ensure their case goes through the system in a proper manner while avoiding common pitfalls.  Filing on your own may seem simple enough  when you are able to download documents online, but many have no idea what [...]

More than half of all businesses formed today will be gone in five years. Statistics like that notwithstanding, Chapter 7 bankruptcy isn’t usually the best route to take for the corporation shareholders.
According to Statistic Brain, chances of small business success are slim over the long haul. From incompetence to disasters, a litany of mistakes can shutter your operations in short order.
Many small business owners turn to the corporate form as a way of protecting their assets. In so doing, they become shareholders of a corporation that owns the business assets.
But if the venture fails, the same protections from creditors that you’d get in a Chapter 7 bankruptcy don’t quite pan out for the corporation.

How Chapter 7 Bankruptcy Works For Corporations
Chapter 7 bankruptcy is used for liquidation purposes. A trustee is appointed to sell assets and distribute the funds to creditors.
For individuals and married couples, the end result is a discharge of personal liability for repayment of many types of debts.
Related:

• Chapter 7 Bankruptcy
• Role of the Bankruptcy Trustee

Corporations, however, cannot be given a discharge. Though assets are sold, the end result of the Chapter 7 bankruptcy is … simply the closing of the case.
That’s because once the business is liquidated and everything sold, there’s nothing left. There is no business, no assets, no inventory. Though there’s no discharge, there’s no need for one.
Using Chapter 7 Bankruptcy To Shut The Corporation
Though a discharge isn’t available to the corporate Chapter 7 debtor, that doesn’t mean it’s of no value. To the contrary, a Chapter 7 filing may be exactly what you need to wind up affairs.
Filing for Chapter 7 bankruptcy may be an orderly way to sell off assets and pay creditors depending on the corporate situation. For example, if all creditors are unsecured then it’s a handy tool for organizing and prioritizing repayment and liquidation of assets.
Chapter 7 may also be a good way to help people who have cosigned and guaranteed loan repayments on behalf of the corporation. Liquidation of corporate assets will reduce the amount the individuals will need to pay once the dust settles.
First, Consider State Law Options
Sometimes bankruptcy’s the wrong choice for a corporation looking to wind up affairs. You take the risk that he trustee appointed to oversee the sale of the assets doesn’t have the familiarity with your industry necessary to fetch the best price. That, in turn, may lead to guarantors and cosigners being left with a greater burden after it’s all over.
Consider, then, state law options.
In many states, California included, a corporation can do what’s called an assignment for the benefit of creditors. Under state law, there’s a procedure for the corporation to take all assets and hand them over to a receiver for sale and distribution to creditors. The process functions similarly to a Chapter 7 bankruptcy for the corporation, but without the filing.
If a corporation’s debts are all secured by equipment or receivables, it could simply give up the security to the creditor and be done with it. Again, no bankruptcy involved.
Once that’s done, just close the corporation through dissolution under state corporation law.
Choose Based On Your Needs
Your corporation can choose to go through a Chapter 7 bankruptcy to wind up affairs, or opt for a remedy under state law.
No solution is perfect, nor does one size fit all. But if you analyze your needs along with the pros and cons of each choice, you’ll find one to suit your goals.

Solving your debt problems can be as tough as a blind man trying to describe an elephant.
In the story of the blind men and the elephant, three blind men all come together to describe the animal.
The men are blind, so their descriptions are limited solely to the area of the elephant they touched. One man says the beast is like a tree trunk, another claims the elephant is like a snake.
It’s only when a sighted man walks by and sees the entire elephant all at once do they realize that they’re all wrong. Without perspective and the ability to see the full picture, they’re doomed to incorrect solutions.
Same with your bill problems.
You’ve got a mountain of debts and no clear way of paying them. You can start throwing money at the problem, but without seeing the full picture there’s a good chance you’re not going to get very far.
Let’s put together another plan of attack instead.

Take A Step Back
If you’re too close to the elephant, all you see is grey skin. Take a step back and you’ll notice the rest of the animal.
So, too, with your debts. Look solely at one bill then you don’t have a sense of your entire financial position.
Your credit cards may be up-to-date but your student loans in default. Rather than worrying about the student loans, take a look into ways you can handle the credit card debt.
Step back even a bit more and consider why you need to use those credit cards in the first place. Is your cell phone plan too expensive, which eats into your grocery budget and requires you to use plastic?
Looking at your entire financial picture gives you the perspective you need to get to the heart of the matter.
Brainstorm Ideas
When you’ve got a problem, you come up with the same short list of solutions. But what about something totally off the wall?
For example, about a decade ago I found myself in a financial bind. Business was terrible, my local economy was in shambles, and a major referral source had gone out of business. My debts were spiraling and things seemed hopeless.
Then I brainstormed by sitting down with a pen and a pad of paper. No solution was off-limits, no matter how insane (so long as it was legal and ethical, it was on the table).
After hours of frustration, I came up with a workable plan. I gave my car back at the end of the lease and started using public transportation. I cut my cable service. I sold some extras books and CDs online (remember, this is before iTunes and Kindles).
In the end, I was able to keep afloat until business turned around. Without brainstorming, however, I would likely have been in deeper trouble.
Say (A Theoretical) Yes To Every Option
There’s no single solution to a problem. Rather, there are many ways to get the job done.
Debt reduction can come in many forms, from cutting up the credit cards to credit counseling to smarter budgeting and more. The problem is that we view each of those options from behind the filter of our own biases.
For example, let’s go back to the cell phone plan. What would happen if you switched carriers or plans? Would you lose your phone and, if so, what options are out there for you? If there’s a termination fee, run the numbers to find out when the cost savings evens out.
With credit card debt, pretend you enter a credit counseling program and play out the long-term impact on your finances. How much would you pay each month, and for how long? What’s the impact on your credit score, and will any negative effect be outweighed by your ability to save money for the future?
Run the options by saying YES so you can see how it all plays out.
Be Your Own Best Friend
Let’s say your best friend comes to you with a financial mess.
You’ve done all your homework, brainstormed for the best ideas, and know the pros and cons.
What solution do you recommend?
Going through this exercise helps you keep from going through life like the blind guys checking out the elephant.
Do What You Need To Do
Perspective is useful, but only as an academic exercise – unless you take what you’ve learned and use it.
Whatever solution you find to your debt problems, you need to go out and fearlessly execute on it. Without action, you’re just wasting your perspective and dooming yourself to hanging around with an elephant.

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