Types of Business Bankruptcy
Business bankruptcy is what you must avoid and the last thing you want to happen in your business. However, you must be aware of the risk that your business might fail. Anyone who starts with a business venture should know the different options available when things don’t turn out as you hoped for.
Chapter 7
Business bankruptcy with the use of Chapter 7 is closing permanently your business. The court will liquidate the assets in order to pay for your debts. The money collected from the sale of your assets will be distributed to your creditors. The court will assign a trustee to ensure that all your creditors will have a fair share of the income from the sale of your assets.
Chapter 11
In chapter 11, you will be able to continue operating as a business entity. It will not require you to cease your operation. It provides you an opportunity for earning income to pay for your debts. The duty of the court is to determine a proper restructuring plan for you to pay your creditors. Aside from you reconstruction plan, your creditor may also propose a different plan. Ultimately, the court will decide on which reconstruction plan is to be implemented. The court will then assign a trustee to ensure that the reconstruction plan is being followed. Since your business continues to operate, following the plan can help you pay for your debts and emerge out of Chapter 11 successfully.
Chapter 13
This is for individuals who need to file for bankruptcy. If you are a small business owner who registered your business as a sole proprietor, then you would want your personal assets to be protected. You have the options to follow which provision is best for you. If you opted to close your business and liquidate your assets then you can be guided by the provisions of Chapter 7. However, if you only need to reconstruct your payment to your creditors and would want to keep your business operating, then you may follow the provisions of Chapter 11.
