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Most people don't go into business thinking that the business will become overwhelmed by debts. When that does happen, the owner of the business will have to decide how to handle the situation. There are three types of bankruptcy that might help business owners to take control of their debt. Each of these three types have specific benefits, drawbacks, and requirements.
Chapter 11 bankruptcy is one of the most common forms of bankruptcy for businesses. Under this chapter, the business is reorganized in a way that the creditors of the business will get paid. This isn't a quick answer to financial troubles for a business. Instead, it is a long process that requires very detailed records be presented to the court. Business owners should know that in Chapter 11 bankruptcies, the creditors have to vote to accept the repayment plan that is proposed. Only after a certain number of creditors accept the plan can the bankruptcy move forward. The plus side of this type of bankruptcy is that the business owner gets to maintain control of the business. The business owner doesn't have to shut down the business and allow the court to liquidate the assets.
In a Chapter 7 business bankruptcy, the business' assets are liquidated by the court to satisfy the debts of the business. While this type of business bankruptcy might work for some larger businesses, it is usually suited more toward smaller businesses that don't have an interest in remaining in business. In most cases, partnerships and closely-held businesses might not do well under filing Chapter 7 bankruptcy because of legal hurdles and other considerations that can complicate an already complex process.
While a Chapter 12 bankruptcy is usually considered a personal bankruptcy, it is reserved only for people who are in business as farmers or fishermen. The requirements to file for a Chapter 12 bankruptcy vary for each industry. Unlike Chapter 11 or Chapter 7 bankruptcy protections, Chapter 12 allows these seasonal businessmen and businesswomen to make payments on their bankruptcy in accordance with their income bearing months. This can take some of the strain off of them during the months without any income.
No business owner wants to think of their business going under. The protections that business bankruptcies offer can help business owners who are drowning in business debt. For qualifying businesses, filing for Chapter 11 or Chapter 12 bankruptcy allows them to stay in business. When the business has to close, Chapter 7 bankruptcy allows the business owner to liquidate assets to pay off debts. Seeking the help of an experienced bankruptcy attorney might help businesses in financial trouble to explore their options for financial relief, regardless of whether the business will remain open or close down.
This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified business bankruptcy lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local business bankruptcy attorney to discuss your specific legal situation.