To Liquidate or To Reconstruct in Business Bankruptcy
You’ve already decided that filing for business bankruptcy is the best solution for your debt problems. Now you are deciding whether to file for Chapter 7 or Chapter 11.
Chapter 7 or Liquidation
If you chose to file for Chapter 7, all your assets will be subjected for liquidation. How much of your asset will be liquidated? It depends on whether how much of your assets can pay for all your debts. The court will issue a decision on which or how much of your asset is to be liquidated.
Depending on the type of your business, the liquidation can cover either or both your business and personal asset. If your business is a sole proprietor, then both your business and personal assets will be considered as focus of liquidation. If the business is a corporation, the only assets that will be liquidated are the assets that belong to the corporation. Your personal asset will not be subjected for liquidation.
Choosing Chapter 7 should be your last options. Only choose Chapter 7 if you have carefully studied your business and no other plan can save it. You may opt to try reconstruction first rather going directly for chapter 7.
Chapter 11 or Reconstruct
Choosing Chapter 11 is adhering to a court’s decision for reconstruction plan. The court will ask for a reconstruction plan for paying for your debts. You will also need to provide them a list of all your creditors. The creditors can also provide the court with an alternative reconstruction plan. The court will come up with a decision of reconstruction plan of your debt payments. You are legally obligated by the court to implement the decided reconstruction plan.
This is best for companies who needs to buy time and wants to continue the operation of their business. Hopefully, with a reconstruction plan the business can pull itself out of the tight spot.
