The Ins and Outs Of Business Bankruptcy
When it comes to filing for bankruptcy in business there are many aspects to consider.
While some of the basics may be similar to a personal bankruptcy, there are also some very important differences.
Depending on the financial situation of the company, bankruptcy offers two options for businesses to resolve debts.
Chapter 11 Bankruptcy A Chapter 11 bankruptcy is a type of debt restructuring in which the company remains in operation while it works to resolve its debts.
Similar to a personal Chapter 13 bankruptcy, Chapter 11 cases involve a debt repayment plan that outlines how debt payments are to be made to creditors.
There are several ways business debts can be repaid in a Chapter 11 case.
The company may grant creditors the opportunity to stake claim over future profits, ownership rights may be sold to investors and market sharesmay be given to creditors that can be cashed in at a later time.
The company may also sell off a portion of assets in order to satisfy debt payments to creditors.
The overall benefit in filing for Chapter 11 is to allow the company to remain operative and regain control over profitability.
Chapter 7 Business Bankruptcy Like a personal Chapter 7 case, a business Chapter 7 is a type of liquidation bankruptcy.
In this type of case, business assets are sold and the profits given to creditors to satisfy debts.
Profits from the sale of any remaining market shares will also be sold and given to creditors.
The company ceases operations and all ownership rights will be terminated in the process.
Only after all creditors are paid will the company's owner have a chance at claiming any remaining assets or profits from the liquidation of the company.
Business Chapter 7 cases are generally only pursued if the company does not have the ability to regain profitability in the future.
Case Outcomes Like a personal bankruptcy, both types of business bankruptcy cases can end in one of two ways.
The desired outcome is a debt discharge, in which debts are resolved and the case is closed.
In a Chapter 11 case, a discharge essentially means the company has resolved debt liabilities and has returned to profitability.
In a business Chapter 7, a discharge means the company has paid what it can to creditors and is no longer in operation or liable for debts.
The alternative is a debt dismissal, in which the case is closed either by the debtor or the court and no debt resolution was achieved.
The debtor may request for the case to be dismissed if they feel debts can be resolved outside of bankruptcy or ask to have the case converted to a Chapter 7 if they lose confidence in future profitability.
The court may dismiss the case if the filer fails to comply with rules and regulations of the process or may convert the case if they feel it is in the best interest of the creditors.
While some of the basics may be similar to a personal bankruptcy, there are also some very important differences.
Depending on the financial situation of the company, bankruptcy offers two options for businesses to resolve debts.
Chapter 11 Bankruptcy A Chapter 11 bankruptcy is a type of debt restructuring in which the company remains in operation while it works to resolve its debts.
Similar to a personal Chapter 13 bankruptcy, Chapter 11 cases involve a debt repayment plan that outlines how debt payments are to be made to creditors.
There are several ways business debts can be repaid in a Chapter 11 case.
The company may grant creditors the opportunity to stake claim over future profits, ownership rights may be sold to investors and market sharesmay be given to creditors that can be cashed in at a later time.
The company may also sell off a portion of assets in order to satisfy debt payments to creditors.
The overall benefit in filing for Chapter 11 is to allow the company to remain operative and regain control over profitability.
Chapter 7 Business Bankruptcy Like a personal Chapter 7 case, a business Chapter 7 is a type of liquidation bankruptcy.
In this type of case, business assets are sold and the profits given to creditors to satisfy debts.
Profits from the sale of any remaining market shares will also be sold and given to creditors.
The company ceases operations and all ownership rights will be terminated in the process.
Only after all creditors are paid will the company's owner have a chance at claiming any remaining assets or profits from the liquidation of the company.
Business Chapter 7 cases are generally only pursued if the company does not have the ability to regain profitability in the future.
Case Outcomes Like a personal bankruptcy, both types of business bankruptcy cases can end in one of two ways.
The desired outcome is a debt discharge, in which debts are resolved and the case is closed.
In a Chapter 11 case, a discharge essentially means the company has resolved debt liabilities and has returned to profitability.
In a business Chapter 7, a discharge means the company has paid what it can to creditors and is no longer in operation or liable for debts.
The alternative is a debt dismissal, in which the case is closed either by the debtor or the court and no debt resolution was achieved.
The debtor may request for the case to be dismissed if they feel debts can be resolved outside of bankruptcy or ask to have the case converted to a Chapter 7 if they lose confidence in future profitability.
The court may dismiss the case if the filer fails to comply with rules and regulations of the process or may convert the case if they feel it is in the best interest of the creditors.