A fellow practitioner posed the following question: An individual filed a personal Chapter 7 bankruptcy case. The individual owns a corporation with no material assets and about $140,000 in unsecured debt. Is there any advantage to be gained by filing a corporate Chapter 7?

Ordinarily, filing a Chapter 7 for a closely held corporation can be fraught with traps for the unwary. Upon filing a Chapter 7, the corporation’s shareholders hand over control of the company to a Chapter 7 bankruptcy trustee — an independent fiduciary randomly chosen from the panel of qualified trustees in the local geographic area. That trustee is charged with the legal statutory duty to liquidate the corporate assets and act in the best interests of the bankruptcy estate and its creditors. Commonly, an experienced trustee will focus on transactions with "insiders" — most often the owners of the corporation who sometimes are not as careful as one should be in transactions with the corporation.