As a business owner, you've worked hard to curate your product inventory. However, if you're filing for Chapter 7 bankruptcy, asset seizure is part of the process. Understanding how your inventory will be treated during the bankruptcy process can help you prepare to file.

The Craig Black Law Firm has helped businesses work through the filing process, including sorting out which assets are exempt and which may be seized by the courts. If your small business is considering filing for Chapter 13, give me a call at 678-888-1778 or complete my confidential contact form, and I'll personally discuss your case with you.

Inventory as an Asset in Chapter 7 Bankruptcy

When you file for bankruptcy, a trustee will be assigned to your case. This trustee is responsible for reviewing all your assets and determining how each item will be handled.

In the eyes of bankruptcy courts, your inventory is considered an asset. This includes:

• Raw materials
• Finished goods
• Products for sale

Every item can be sold, with the proceeds used to help repay creditors. In most cases, the trustee will determine the value of the items and recommend they be sold. The proceeds will be distributed to the creditors.

Secured vs. Unsecured Debt

While reviewing your assets, the trustee will determine which items are secured and which are unsecured. Each type of asset is treated differently.

• Secured inventory: If you took out a loan using your inventory as collateral, the debt was secured by those items. That means the creditor has first rights to the funds from the sale of those assets.
• Unsecured inventory: If you purchased your inventory using proceeds from your business, it's unsecured. Those creditors have no rights to the property and will be paid after the secured creditors have taken their share. 

The Liquidation Process in Chapter 7

After you've filed for bankruptcy protection, the trustee will take control of all your business's assets. If your business has enough cash on hand to satisfy the debt without liquidating assets, your inventory will remain untouched. However, in a typical business filing, the trustee must sell assets and distribute the funds to creditors.

Your inventory—including items you were actively selling and raw materials like parts, will be sold. This may involve:

• Selling inventory at auction
• Selling inventory in bulk to other wholesalers or liquidators
• Holding a retail clearance sale

With the latter option, the trustee allows you to have a going-out-of-business sale, with all proceeds handed over to creditors. This can give you one final chance to engage with customers and announce to the community that you'll no longer be operating.

Help with Business Bankruptcy Filing

Walking away from a business comes with some challenges, but the Craig Black Law Firm can help. If you're considering filing for Chapter 7, give me a call at 678-888-1778 or fill out my contact form.