A common term associated with filing Chapter 7 bankruptcy is “liquidation.” Many California business owners understand the term well. After all, businesses do not have to file bankruptcy to liquidate their assets. However, it can be difficult to know where to start when it comes to filing bankruptcy and proceeding with liquidation.
So, here is a closer look at what liquidation means for businesses.
What exactly is liquidation?
Liquidation is the process of selling or distributing all of a business’ assets to pay off any remaining debts or creditors. And this includes selling any property related to the business, including:
- All remaining inventory and products
- Possibly certain contracts or intellectual property
- All equipment, including cash registers or phones
- Commercial real estate properties
- Any business vehicles
- Any additional furniture or office supplies
- Refunds for business insurance premiums
Unlike individual bankruptcies, businesses cannot claim any property as exempt. However, selling this property helps business owners eliminate their liability to pay back these debts.
How can business owners distribute their assets?
In Chapter 7 bankruptcy, it is usually the bankruptcy trustee who supervises the liquidation process. Their job is mainly to ensure that the business repays priority debts first during the liquidation process. Otherwise, business owners can choose how they approach liquidation.
Selling all of the business property might sound simple. However, it requires a lot of preparation. Business owners must:
- Take a detailed inventory of all of their assets
- Gather records of finances and products
- Obtain an accurate valuation of all of the property
- Plan the kind of liquidation sale they prefer
There are many kinds of liquidation sales
Everyone has seen the “going out of business” signs. And these sales generally cut prices down to clearance for consumers to help empty their inventory. However, there are various types of sales which businesses can choose from to liquidate their assets, from auctions to online sales.
Liquidation closes the business
It is critical to remember that liquidation involves closing down the business. That is why many business owners use liquidation as an exit strategy when they want to retire.
Understanding the details of liquidation can help business owners determine which chapter of bankruptcy meets their needs.