Business bankruptcies

One of the justifications for having bankruptcy as Federal law is to encourage entrepreneurship.   The thought is that more people will be willing to start their own small business if there was a way to get out of debt if the business didn’t work out.

First off, what is a business bankruptcy?  The code defines it as having more than 50% of your debt as business debt.  Business debt is debt that you acquired with a profit motive.  So business loans, mortgages on property you intended to rent or flip, commercial leases, credit card debt that you used for business purposes, taxes, etc…  So add up all the business debt and compare it to all the non-business debt.  If the business side is higher, you have a business case.

To accomplish this, the bankruptcy code has some special provision for business debtor to make things easier.  First off, there are no 707b objections to discharge which makes it more difficult for the United States Trustee to dismiss your case.  The other major benefit is you don’t have to do the means test.

 

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