Businesses, just like individuals, can face financial difficulties. When this happens, you should seek legal counsel from a trusted bankruptcy lawyer to help review the options available to you, depending on your specific needs and goals. With years of knowledge and expertise in complex business matters, you can count on us to help you achieve financial relief and move forward. There are several types of business bankruptcy—including Chapter 7, Chapter 11 and Chapter 13. We’ll review each of these in detail with you and determine which one is best suited for your particular needs. For instance, while one business may find it beneficial to liquidate their assets under Chapter 7, another may move forward with reorganization under Chapter 11. We realize that each business is unique, and therefore, we work with you in finding a successful solution.
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Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy case, you’ll cease business operations and the court will liquidate your company’s assets—with proceeds paid out to creditors to relieve any debts. These debts include everything ranging from your lease, contracts, utility bills, loans and more. After the entire business is liquidated and creditors receive payment, the entire entity is dissolved.
Personal Liability: It’s important to note that Chapter 7 business bankruptcies do not erase any personal liability that you may have. If you are personally liable for your business, like in the case of a sole proprietorship, you can be held responsible for any remaining outstanding debts. In this case, you’ll need to file for Chapter 7 personal bankruptcy or reach a settlement with your creditors. Otherwise, your creditors could come back to sue you for any debts.
Business Partnerships: If your business is a partnership, Chapter 7 bankruptcy may not be the best solution. Since partnerships tend to be more complex in nature, it could be easier for your creditors to come after you and your partners personally—even after your business has been dissolved.
Chapter 11 Bankruptcy
This type of bankruptcy is often referred to as “business reorganization” because it’s designed to provide relief for a number of companies—from businesses to nonprofits to high-debt individuals. While this is generally used in the case of major corporations, it may be able to help small- to mid-size businesses as well. In Chapter 11 bankruptcy, you’ll gain temporary relief from creditors while working on reorganization plans for your business. This opens the door for plenty of possibilities.
Throughout the process, you may be able to restructure your debts, including:
- Adjust interest rates
- Extend Terms of payment
- Reduce principal balances
Chapter 11 bankruptcy gives you time to come up with a financial plan to pay back creditors and get back on your feet. This can involve selling off some of your business assets or even downsizing your business to help pay back creditors. And, unlike Chapter 7 bankruptcy, your personal assets are not at risk in a Chapter 11 case.
Chapter 13 Bankruptcy
If your business is a sole proprietorship—meaning you own and operate the company—you may be able to file for Chapter 13 bankruptcy. This is important to note, as Chapter 13 can only be filed by individuals; it’s not an option for partnerships, limited liability companies or corporations. It also entails debt limitations, which is something our knowledgeable attorneys can walk you through to see if this type of bankruptcy is suitable for your business.
In Chapter 13 bankruptcy, you’ll have the opportunity to reorganize and pay off your debt through a repayment plan. The entire process takes about three to five years, depending on how long it takes to pay back your creditors. During this time, you’ll be assigned a bankruptcy trustee who will oversee your case. Afterward, creditors will no longer be able to contact you for money.