Filing bankruptcy can be an extremely difficult time for businesses. Will the business be able to stay open? Will employees be laid off? These questions can be overwhelming and depend on which type of bankruptcy a business chooses.
For businesses, there are three potential bankruptcy options that will determine whether a business will remain open.
Chapter 7
Chapter 7 bankruptcy is known as “liquidation bankruptcy.” Often, a business will close after a Chapter 7 bankruptcy filing because you will need to sell off the assets to repay the debts.
Chapter 7 bankruptcy is managed by a trustee, which can come as a relief to business owners who do not want to manage the process. Chapter 7 is also a very transparent process, which can be both positive and negative.
Chapter 11
Often referred to as “reorganization bankruptcy,” Chapter 11 bankruptcy can be a good option for many businesses. This type of bankruptcy allows small businesses to continue operating while reorganizing debts and setting up a plan to repay debts. Chapter 11 is an option for partnerships, limited liability companies and corporations looking to pay off their debts and keep their doors open.
Generally, businesses that choose a Chapter 11 bankruptcy will downsize or sell off a portion of assets to stay profitable and keep the business going.
Chapter 13
Like Chapter 11 bankruptcy, a Chapter 13 bankruptcy allows businesses to keep assets and reorganize debts under a repayment plan. However, Chapter 13 bankruptcy is typically only an option for individuals or businesses that operate as a sole proprietorship.
This type of bankruptcy allows a sole proprietor to pay off debts using both business and personal assets. While there are rules in determining exempt and nonexempt property in a Chapter 13 bankruptcy, this type of bankruptcy can allow sole proprietors to keep their business operating while reorganizing both personal and business finances.
Choosing which bankruptcy is right for your business can be complex. It is important to take time to research and speak to an experienced bankruptcy attorney to determine which option might work best for your business.