What Is Small Business Bankruptcy In Illinois?

After decades of helping individuals and businesses one thing is  clear. Each client is unique and that includes their problems,  situations, and possible solutions. Experienced lawyers do not offer  cookie cutter options. The Bankruptcy laws have parameters, rules and  regulations. Within these parameters experienced lawyers should look for  solutions that best fit the needs of the individual person or company.  Our motto is that you are special and should be treated as such.

Bankruptcy  is sometimes a necessary event in the life of a business. When cash is  short, creditors start calling or taking other actions to collect.  Bankruptcy provides breathing room for an orderly way of paying  creditors. Sometimes reorganization is possible. Sometimes the company  needs to liquidate. Either way, bankruptcy offers help to the business  and its owners.

For any type of case  filed, papers must be filled out that show all property owned by the  business, all debts owed, and a cash flow schedule. As will be discussed  a little later all creditors must be listed so they can participate in  the proceedings. Any creditor that is not listed and given the  opportunity to participate can later attack the bankruptcy.

Before  determining the options for a small business, whether liquidating or  reorganizing, the formal ownership of the business has to be determined.  Each type of bankruptcy has its own advantages depending on the  ownership. The 3 main possibilities are:

  • Sole Proprietorship: either individually or a married couple.
  • A Partnership
  • A Corporation including LLCs and Sub-Chapter 7S. This can include a For Profit corporation or a Not-For-Profit Corporation.

For  a business to reorganize, a payment plan has to be approved by a court.  That can be a Chapter 13, Chapter 11, or possibly another chapter.  Reorganizations are discussed in another article. The rest of this  article discusses liquidations.


A  sole proprietorship, including a Married couple owning a business, is  really an individual filing bankruptcy since the business is not a  separate entity. If a Chapter 7 is the desired option all debts and  assets must be listed. This includes not only the business debts and  assets but also personal debts and assets. When John Doe D/B/A Doe’s  consulting files a Chapter 7 it will be filed in the name of John Doe  and Doe’s consulting listed under Other Names. The individual(s) will  get a discharge of most debts at the end of this type of Chapter 7. The  discharge of the Chapter 7 does not prevent the Debtor from proceeding  with a new business venture.

A  Partnership that files a Chapter 7 must only list the business’s debts  and assets. The partners must bear in mind that each will be personally  liable for the debts of the Partnership so this bankruptcy may need to  be done in conjunction with some personal bankruptcies for the partners.

A Corporation that files a Chapter 7 also may only list the assets and debts owed by the corporation.

There  are Three (3) possible problems with Small Corporations. First, some or  all of the debts may have been personally guaranteed by owners (the  stockholders). Second, struggling businesses often defer paying  Withholding taxes. Officers and Directors most likely will become  personally liable for the Withholding taxes not paid. Third, if owners  (the stockholders) have not kept the business entirely separate from  their personal affairs, any creditor can seek to “pierce the corporate  veil” and hold the managers liable for the debt.

In  any of these scenarios, the business shuts down and its assets are  liquidated. At the conclusion of the case there is no discharge for a  partnership or corporation: the case is merely closed. Exemptions  available to individuals are not available to corporations or  partnerships.

For more information on Small Business Bankruptcy In Illinois, a Complimentary consultation is your next best step. Get the information and legal answers you are seeking by calling today.

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