When should a business voluntarily file Chapter 7?
Chapter 7 bankruptcy of a business involves its liquidation and should be viewed as a last resort when all other reasonable and realistic alternatives to chapter 7 have been explored and exhausted. Alternatives to chapter 7 for a business may include obtaining new sources of debt financing or capital investment, sale of assets or sale of the business in whole or in part, an out-of-court workout with creditors, or a restructuring under chapter 11. If none of these alternatives are viable, management or owners of a business may want to file a chapter 7 liquidation for a financially troubled business that is unable to pay its debts or has debts greater than assets (i.e., insolvent). If a business is insolvent or in the zone of insolvency, there is a developing body of case law that holds that management no longer has a duty to the owners (i.e., shareholders or other equity holders) of the business, but rather to its creditors. By filing a chapter 7 bankruptcy, management can ensure that c
