Why Should Small Business Owners and High-Income Earners File for Chapter 7 Bankruptcy?

Although Chapter 7 bankruptcy is most commonly filed by individuals looking to relieve their personal debts, many small business owners and high-income earners file Chapter 7 bankruptcy in an attempt to save their business, close it, or keep their personal assets. If you’re a small business owner or high-income earner that’s considering filing Chapter 7 bankruptcy, CMC Law’s team of bankruptcy lawyers is ready to assist you with to get a better grasp of your business debts.

Why File for Chapter 7 Bankruptcy as a Small Business Owner?

Individuals that own a small business typically file Chapter 7 bankruptcy to settle corporate debts they have no way of paying back; in fact, small business owners receive certain benefits that do not extend to ordinary filers. Individuals who file business chapter 7 are entitled to a discharge of debt and to exempt a portion of property.

Furthermore, individuals who file bankruptcy based primarily on non-consumer debts are not subject to scrutiny under the means test. This means many individuals who ordinarily might not qualify for Chapter 7 bankruptcy based on high income may still benefit from a Chapter 7 discharge. The non-consumer means test exclusion is designed to encourage people to start businesses, with the knowledge that if the business fails, bankruptcy will allow entrepreneurs a second chance.

Can I File for Chapter 7 Bankruptcy as a Corporation, Partnership, or an LLC?


A corporation can file for Chapter 7, but it won’t receive a discharge of debts. The real benefit of a business filing Chapter 7 is its ability to place the responsibility of selling assets and liquidating debt in the hands of trustees, rather than the owners of the company.

However, it can still be difficult to justify filing this form of bankruptcy for a corporation; stockholders that guaranteed corporate debt will still be liable for the debt, unless they file for Chapter 7 in their own name. Corporations are typically better off selling the property at a higher price and negotiating with their creditors.


Partnerships are separate legal entities that are able to file Chapter 7 business bankruptcy as well, but they are also not given the opportunity to discharge business debt. Partners are not able to use exemptions to protect their property, as trustees will liquidate the business by selling it or its assets to repay debts.

All partners are responsible for the business’ debt in a partnership, which can be an issue. If there aren’t enough assets to pay the debt, the trustee may take the personal assets of the partners to pay them.

Individual partners are advised to file for Chapter 7 separately, discharging their obligations.

Limited Liability Company (LLC)

An LLC works in a very similar way as a corporation when it comes to filing for bankruptcy; an owner of an LLC is able to liquidate the business by filing, but they must still eliminate their business debts by filing a personal bankruptcy claim.

Why File for Chapter 7 Bankruptcy as a High-Income Earner?

Just because someone earns more income than another doesn’t mean they don’t face their fair share of financial hardship. For example, when an earner has an extended time of financial security, they may become invested in financial obligations that seem manageable. However, a job loss or medical emergency could bring an unexpected halt to income while those obligations still need to be paid.

For high-income earners that are not able to pay off outstanding debts, there is still the option to file for Chapter 7 bankruptcy—but you must qualify for it, first.

Can I File for Chapter 7 Bankruptcy as a High-Income Earner??

Individuals who earn more than their state’s median household income may still be able to file for Chapter 7 bankruptcy, however it is much more difficult.

Debtors interested in filing for Chapter 7 bankruptcy will have to pass a means test before qualifying, which will determine whether or not their debt to income ratio makes the capable of filing. Those whose means test results prove that they don’t have any discretionary income after all of their bills are paid can file for Chapter 7 bankruptcy. Debtors whose means test results show that they have some money left after their bills are paid will be required to file Chapter 13 bankruptcy.

High income earners who file Chapter 7 bankruptcy will need to make it clear that they’re filing their case in good faith. Their expenses must be reasonable and fair to their creditors. Typically, they are not allowed to pay for luxury goods and services while failing to repay unsecured creditors.

Talk to a Bankruptcy Lawyer Today

CMC Law’s bankruptcy lawyers specialize in helping small business owners and high-income earners consolidate their business debts.

If you’re seeking more information about Chapter 7 bankruptcy and would like to know if you qualify, contact us today to learn more about how we can assist you. We will help you get a better grasp on your finances.


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