What
you need to know about business bankruptcy attorneys. Includes chapter
7 vs chapter 11 bankruptcy.
We hate to think about it as small business owners, but there may
come a time when we must decide whether to file for bankruptcy. And
if we do, the first terms we come across are Chapter 7 Bankruptcy
and Chapter 11 Bankruptcy. Which one will we file for? Which one
is right for our problem?
Chapter 7 vs Chapter 11 Bankruptcy Facts
There are two key facts you need to remember when evaluating Chapter
7 Bankruptcy versus Chapter 11 Bankruptcy. Chapter 7 is a liquidation
bankruptcy. Here the court appoints a trustee who shuts down the
business, sells all assets and pays the creditors.
Chapter 11 is a reorganization bankruptcy. The stakeholders in the
business feel there is some hope the business can return to profitability.
It gives the business time to catch its breath, regroup, and resume
business so it can eventually pay its creditors. Creditors will have
to wait a little while the business reorganizes.
Why Chapter 7 Bankruptcy?
Why would you choose Chapter 7 Bankruptcy over Chapter 11 Bankruptcy?
It comes down to the likelihood that you can to pay your debt. If
your debts are overwhelming and there is no hope for getting the
business back on track then you will probably need to file for Chapter
7 Bankruptcy.
When you file, a trustee will be appointed to sell off your assets.
It could be that you don't have enough assets to cover what you owe
your creditors. In that case, unsecured creditors take a loss.
Why Chapter 11 Bankruptcy?
Chapter 11 Bankruptcy will allow a business to stay in business
while its owner reorganizes it. The business pays off some creditors.
If you plan to stay in business then this is the bankruptcy that
you want. With Chapter 11, the creditors must stop trying to call
in their loans while the owner designs a plan to pay them off. With
Chapter 11 Bankruptcy, the court appointed trustee oversees all major
business decisions even though the day-to-day management might be
the same.
The big goal of the Chapter 11 Bankruptcy is for the corporation
to come up with a plan for paying back the creditors. They will have
120 days in which to do this. The creditors have to approve of the
plan as well. So as you can imagine it has the potential to become
a complicated matter. Therefore, sole proprietorships typically do
not file a Chapter 11 bankruptcy because of the complexity of paying
off creditors.
No matter what, get a good lawyer to help you through the entire
process. Bother Chapter 7 or Chapter 11 involve a complex set of
laws.
Mistakes
you must avoid when considering bankruptcy for your business
|