Types of Business Bankruptcies

: Chris Lee Law Firm

  Filed under: Bankruptcy

business bankruptcySometimes, business ventures go awry.  This could be for many reasons.  Sometimes, a market dries up or becomes overly saturated.  Sometimes, a new venture never really takes off.  Other times, something unforeseeable causes things to spin out of control to the point that there is just no fixing them.  Whatever the reason, some business owners find themselves facing bankruptcy and wondering what options are available to them.  For the most part, businesses may file for the same types of bankruptcies as individuals with slightly different implications.

Business Bankruptcy vs. Individual Bankruptcy

A Chapter 7 filing is typically filed by those business owners who do not see any way in which the business can be salvaged.  Business assets are typically sold and used to pay off some of the debt and the business is dissolved after the process.  In an individual Chapter 7 case, debtors are seeking debt elimination and may have some of their non essential assets liquidated to satisfy creditors. However, most states offer generous bankruptcy exemption laws to protect assets in a Chapter 7 filing.

Many businesses, however, wish to continue and are certain that they can reboot with some time to reorganize.  In this situation, businesses often consider a Chapter 11 or a Chapter 13.  A Chapter 11 plan is literally when the court intervenes and grants a business a stay that allows it to reorganize and pay back creditors.  If a business is able to maintain the payment plan determined by the court, the business will stay open and, eventually, the court will remove itself from the role of moderator.

A Chapter 13 bankruptcy is one typically favored by small businesses that are limited liability companies, partnerships, or sole ownerships; primarily because a Chapter 13 protects a business owner or partner’s personal property while the business restructures. In an individual Chapter 13 case, the debtor develops a repayment plan on personal debts to be repaid to creditors over a period of three to five years.

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