What is Business Bankruptcy?
For businesses who fail to make ends meet for various reasons, filing for bankruptcy may be a viable option for owners if they seek to continue the venture or conclude it. Bankruptcy is a federal process designed to help businesses repay their debts under the guidance and protection of the federal courts. Business bankruptcies are described as either liquidations or reorganizations. The appropriate type of business bankruptcy depends on the form of the business and the extent of the debt owed.
What is Chapter 7 Business Bankruptcy?
Chapter 7 Business Bankruptcy is designed to completely liquidate a failing company. Generally, a business that files for Chapter 7 Business Bankruptcy has accumulated overwhelming debt which causes reorganization to become impossible. Chapter 7 Business Bankruptcy is also appropriate if the business is an extension of the owner’s skills, and maintains no substantial assets. Under Chapter 7 Business Bankruptcy, a court-appointed trustee is tasked to take possession of the assets of the business and to distribute them to creditors. Once the assets are distributed, the owner receives a discharge, meaning that they are released from any further debt relief requirements.
What is Chapter 11 Business Bankruptcy?
Chapter 11 Business Bankruptcy is designed for businesses that may have a potentially profitable future. Under Chapter 11 Business Bankruptcy, a court appoints trustees who are tasked with reorganization. In some cases, the owner of the company may be the court-appointed trustee. The company seeking Chapter 11 Business Bankruptcy must provide a detailed plan of reorganization that outlines how the debt will be satisfied and how the company will be revitalized. The creditors are allowed to vote on the proposed plan and object to proposals that do not satisfy their needs. The court is tasked with verifying the terms of the reorganization and ensuring the procedure is fair and equitable.