April 3, 2020

Can a Small Business Owner File Chapter 7 Personally and Still Keep His Business

Over the past few weeks, I have received a number of calls from small business operators who want to file Chapter 7 on credit card debt, but continue to operate their businesses.  In many of these cases, the business owner used personal credit cards to fund business operations and now the business is profitable or marginally profitable but for the debt service on tens of thousands of dollars of credit card debt.

Unfortunately the answer I have to give to these prospective clients is not what they want to hear. If you own a small business and are incorporated, the shares of that business are assets. In turn, any accounts receivable for that business are an asset of the business that accrues to the shareholders.

Except in the case of a personal service business that has no inventory or receivables or any value other than the daily efforts of the owner, my experience has been that if you file a Chapter 7, the trustee will demand that you cease operations and turn over the books, the keys and the inventory to the trustee’s office.

In my experience, therefore, if I meet with a small businessperson who wants to file Chapter 7, I usually end up advising that if he wants to file Chapter 7, he needs to be prepared to close the doors to his business and “start over.”

Sometimes that businessperson can start over by forming a new corporation and resuming operations but that can be tricky as well and could result in challenges to the bankruptcy. Often the best course of action would be to close the doors to the business, take a job making a set salary, then file for bankruptcy. Thereafter, I often counsel my clients to wait 6 months or a year before resuming their entrepreneurial enterprise.

Of course every case is different and if you are a small business person with personal and/or combined personal and business credit card debt you should seek counsel for legal advice specific to your situation. However, do not be surprised if your lawyer advises you that you may need to close the doors to your business.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. It depends on the trustee. Since there is no specific prohibition on an individual debtor operating a business I think they can. One section states that the trustee may operate the business of the debtor for a brief time period and some argue that by implication the debtor cannot operate the business. Obviously a corporation will be shut down, but an individual debtor who operates a business using exempt property should be able to continue since a debtor is allowed to possess exempt property. I had a case recently involving cash collateral where the judge ruled that an individual debtor could not receive court approval to use cash collateral in a Chapter 7. We converted to Chapter 13.

  2. i am a truck driver, I own my truck and I need to know if I can file a chapter 7.
    My truck is now my home, due to a foreclosure will I be told that I need to sell my truck/residence in order to file a chapter 7? thanks

  3. I file chapter 7 for my business in Jan of 2012. I was a manufacturer, but would now like to start a small design business in the same industry under the same name. I am not worried about any negative image issues, we had a good reputation, and my new business will have customer across the U.S. and Canada. Are there any consequences to using the same name, ie, creditors for the old business try to collect on old debt prior to my chapter 7?

  4. Doug, that is probably more of a question for a corporate lawyer. My gut tells me to use a different name to avoid potential problems.

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