Debts and Assets In Business Bankruptcy

The purpose of a business bankruptcy is similar to a personal, reduce the debts and protect the assets. Although the objectives are similar, the process of achieving that goal can be quite different. The reason is that filing for bankruptcy in business must deal with far more creditors, types of debts and, generally, has different kinds of assets than a personal bankruptcy.

The attorneys at The Lee Law Firm are highly experienced in all types of bankruptcy. Their mission is to provide anyone single, married, divorced or a business owner with the help they need to get out from under their debts and regain a financially solid future.

Business Debts

The types of debts found in businesses are very different from those found at the personal level. Of course there are some lines of credit and credit cards that may be included in the bankruptcy, but there are also debts such as delinquent payments to inventory vendors, equipment and building rental payments, employee benefits and business taxes.

A business Chapter 7 case can eliminate certain debts such as credit card debts, unsecured loans and delinquent payments owed to vendors or equipment rental owners. Similar to a personal Chapter 7, these business unsecured debt are eliminate by either (a) liquidating remaining assets to satisfy the debt payment to creditors if the business has remaining assets available or (b) having the creditors write off and erase the debt, if the business does not have any remaining assets available of value.  Business debts that are not eligible for discharge in a business Chapter 7 are taxes, employee benefits, debt accumulated through fraudulent actions or debts that result from company negligence.

A Chapter 11 bankruptcy case allows for a restructuring of debts. Similar to a personal Chapter 13 case, filing for Chapter 11 can help a business reorganize their debts and develop a plan for repaying creditors. In general, a Chapter 11 case is designed for businesses that wish to remain in operation while they work towards reducing their debt.  Debts that are not eligible for discharge under a business Chapter 7 may be allowed to become part of the Chapter 11 repayment plan.

Business Assets

Business Chapter 7 bankruptcies have similar risks as those in a personal Chapter 7 case. In general, the assets of the business are at a greater risk for seizure and liquidation in a business Chapter 7 case. Since the debts are not being repaid, creditors may be entitled to some of the profits from the selling of assets in order to satisfy debt payments. In some cases, the business is left with nothing after the creditors have been satisfied and the business is forced to cease operation.  Life after business bankruptcy can be quite different for a business than for a person after a personal bankruptcy.

Business assets are better protected in a Chapter 11 case because the debts are being repaid to creditors. However, this does not mean that some assets are not at risk of liquidation even in a Chapter 11 case. For example, if debts are restructured in a Chapter 11 case and the court arranges for a bankruptcy auction to take place, a third party may buyout the remaining assets and ownership rights of the company. The company will then become owned and operated by that third party and will no longer belong to the original owner that filed the Chapter 11 case. This example is commonly seen in large corporations or big name franchise operations, in which the company stays operative but is transferred to the hands of a different owner and loses some of its current assets in the process.