What happens to my small business in Chapter 7?
Depends what the 'business' is. A solo service business that's really your own labor (a trade, consulting, gig work) usually continues; tools are often exempt and you are not an asset. A business with real inventory, equipment, or receivables is property the trustee can close and liquidate. And an LLC or corporation is a separate question: your bankruptcy takes your ownership interest, not the company's assets, but the interest itself has value. Personal guarantees on business debt are usually what actually drives these filings.
In this answer
The business that is you
If the enterprise is your hands and your reputation, the handyman, the hairdresser, the consultant, the driver, there’s little to liquidate: you can’t be sold, tools-of-trade exemptions cover working equipment in most states, and filers in service trades routinely work straight through their Chapter 7. Trustees may ask about receivables and want proof of insurance for ongoing operations, but “keep working” is the normal outcome. Income going forward simply becomes your income for the case’s purposes.
The business that owns things
Inventory, equipment beyond the exemptions, valuable receivables, a sellable customer list: those are estate assets, and a Chapter 7 trustee can shut the operation and liquidate them, sometimes quickly, since running a business is risk trustees rarely accept. If the operating assets matter and the business is viable, this is Chapter 13’s territory again: keep operating, pay non-exempt value through the plan, self-employment income and all.
The entity twist
If the business is an LLC or corporation, it doesn’t file when you do: your case takes your ownership interest: the shares, not the shop. But don’t relax yet: that interest is an asset the trustee can value and sell, and for a profitable single-owner company, its value is roughly the company. Meanwhile the entity’s debts mostly aren’t your debts, except where you signed personal guarantees, and you almost certainly did: landlords, suppliers, the SBA loan, the business credit card. Those guarantees are personal, dischargeable debts, and discharging them is very often the actual point of the filing when a business has failed.
Sequencing a failed business
Closing first versus filing first changes what the trustee finds, how leases and guarantees crystallize, and what the tax picture looks like (payroll trust-fund taxes follow you regardless, per the tax article). This corner has enough moving parts that the only universal advice is early: bring the books, the guarantees, and the leases to a consultation before making moves, and if the enterprise is worth saving rather than burying, ask about Chapter 13 and, for bigger cases, the small-business reorganization tools beyond this Library’s consumer scope.
Sources
This is general information, not legal advice. The right answer for you depends on details a website cannot see, and rules vary by state and by court.
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