Like consumers, businesses sometimes also have trouble with paying their debts. Businesses that are experiencing serious financial difficulties can choose to file for bankruptcy under the federal bankruptcy code.
Business bankruptcy is supervised by the bankruptcy court, freeing the business from having to repay a portion or all of its debts. Bankruptcy for businesses can help to give the business a new financial start, but it may lead to the business’s end and damage the business’s credit. If you are a business owner who is considering filing for business bankruptcy, it is important for you to consult with our experienced bankruptcy attorneys.
Commercial bankruptcy options
Business owners can choose to file for liquidation bankruptcy or reorganization bankruptcy for their businesses. Liquidation is available for businesses through Chapter 7 bankruptcy while reorganization bankruptcy is available for businesses under Chapter 11. Chapter 13 is also available to businesses only in rare cases. Sometimes, creditors may petition for a business to have to undergo an involuntary commercial bankruptcy, but the creditors must show that their claims have merit in order to do so successfully.
Chapter 7 bankruptcy for businesses
Bankruptcy under Chapter 7 is most often used by individual consumers, but it is available for businesses that want to liquidate their assets so that they can obtain relief from their debts. Under Chapter 7, businesses begin the process by filing a petition for relief with the bankruptcy court. After the petition is filed, the court issues an injunction that forbids the creditors from taking any further steps to try to collect on the debts. This injunction is a court order that is called an automatic stay. A trustee is then appointed, and his or her job is to sell the assets of the business and handle all of the details so that as much of the debts as possible are paid.
Chapter 11 bankruptcy for businesses
Under Chapter 11, businesses can file for a reorganization of their debts instead of going through a liquidation of their assets. Chapter 11 bankruptcy allows a business to remain open while the bankruptcy case is open. The bankruptcy court must approve any transactions that might happen outside of the debtor company’s ordinary course of business.
In order to open a Chapter 11 bankruptcy case, the business begins by filing a petition for relief under that chapter with the bankruptcy court. Upon filing, the court issues an automatic stay. Trustees are not always appointed in Chapter 11 cases, but courts sometimes choose to do so.
The business then is required to file a proposed reorganization plan. This plan will explain to the court how the business plans to continue doing business while still making payments to its creditors. Creditors are able to object to the proposed plan and to suggest ones of their own. Ultimately, the bankruptcy court will decide whether or not to approve a plan, and the court may do so even if some of the creditors do not agree with it. If the court doesn’t approve any plan, the bankruptcy may be dismissed or converted to a Chapter 7 liquidation case.
Contact our experienced business bankruptcy attorneys
In some cases, a business owner wants to file for reorganization when it is simply not possible. In those cases, it may be best to instead close the business or to work to pay off the debts that the owner might hold personal liability for. In order to learn more about what might work best for your business’s financial situation, call us today to schedule your appointment. We will give you an honest assessment.