Chapter 7 bankruptcy is the most common form chosen by individual consumers, whose debts are primarily consumer debts where the debtor has financial difficulty and does not have the ability to pay existing debts. In a Chapter 7 consumer bankruptcy, the individual debtor’s goal is to obtain a discharge of existing debts.
Partnerships, sole proprietorships, and corporations are also eligible to file under Chapter 7. However, unlike individuals, these business entities are not eligible to receive a discharge. 11 U.S.C. 727(a)(1).
In a Chapter 7 business case, liquidations are conducted, and many of the business’s assets are sold, and the proceeds are divided among the company’s creditors.
Partnerships or corporations that wish to keep doing business may decide that Chapter 7 is not the best option because, after liquidation and distribution, the business ceases to exist.