Drowning in debt and not being able to repay it can be quite overwhelming, especially if you are a business owner since incoming cash flow can be uncertain.
Filing for bankruptcy might be one of the options you are currently evaluating as an option. It’s important to note, however, that there are several pitfalls associated with bankruptcy cases.Although working with the best bankruptcy lawyers in Pennsylvania can help you to avoid falling victim to these risks, you still need to be 100% honest and transparent from the get-go.
Notably, one of the key factors that can affect the approval of your bankruptcy is classifying your assets. Here’s everything you need to know…
What Are Assets for a Business?
Before we get to the classification of assets, it is better to understand what they mean.
In simple terms, assets are the investments that have irreplaceable value to them, upon selling which profits may or may not be expected on the base value.
So, now that you know what assets are, we should get moving to their classification.
Classification of Business Assets
Particularly, when you’re filing for a Chapter 7 bankruptcy, the trustee would use your assets to pay off the creditors. However, the bankruptcy trustee cannot just sell any asset that your business owns. There are certain assets that are exempted from liquidation.
Exempted Assets
As the name suggests, these assets are usually not liquidated to repay the creditors. Most of the time, these assets consist of real estate and personal property items that are necessary for survival.
For example, your primary home, a car that you have low equity on, your retirement funds, and so on. As the bankruptcy experts at Belsky, Weinberg & Horowitz, LLC explain it, exempted assets cannot be included in the Chapter 7 application. Notably, there could be several other inclusions to the exempted assets, depending on your case.
Another noteworthy fact is that only the bankruptcy court or the bankruptcy trustee has the right to include or exclude assets from the liquefiable property.
Non-Exempt Assets
The primary objective of filing for a Chapter 7 bankruptcy is to allow the authorities to liquidate your assets to pay off the creditors. So, essentially, there are some assets that cannot be exempted from liquidation.
For example, a secondary real estate property that is not your primary home falls under non-exempt assets. Likewise, if you own a car in which you have high equity, can also come under non-exempt assets.
It is also noteworthy that anything that has something to do with your primary profession does not come under non-exempt assets. For example, if you’re a musician, your musical instruments cannot be liquidated to recover the debts you owe.
To Sum It Up
Chapter 7 bankruptcy is suitable for businesses that have adequate assets to either completely or partially pay off the debts. However, the decision for liquidation stands with the federal court. The court can either approve your application or reject it.
In the former case, you can get rid of your debts pretty easily and can restart your life, likewise. However, if rejected, you may need to file for Chapter 13 bankruptcy, which would further require you to pay your debts.
