Business Bankruptcy Overview
If you are a business owner and struggling financially, you may be considering filing for bankruptcy. No business owner wants to be in the position of having to consider filing for bankruptcy. However, certain circumstances can simply cause catastrophic financial problems such as losing a large client, facing employees who have embezzled money, or finding out that your accountant never paid large sums of taxes that were owed. Whatever the reason, business owners would not relish the idea of considering this difficult decision. Understanding the different types of bankruptcy options available to a business can help a business owner make the best decision for their financial future.
Types of Business Bankruptcy
A business can file for either Chapter 7 liquidation bankruptcy or Chapter 11 reorganization bankruptcy. While both of these bankruptcies are available to businesses, these two bankruptcies have very different processes and financial outcomes.
- Chapter 7 Bankruptcy – If a business is unable to meet financial obligations and has made the decision to go out of business, a Chapter 7 bankruptcy may be the best option as it completely liquidates the business. If a business makes the determination to file for Chapter 7 bankruptcy, all lawsuits will be placed on hold temporarily, creditors’ calls will cease, and any foreclosure or repossession actions will stop temporarily.
- Chapter 11 Bankruptcy – If a business owner is facing financial challenges, but wants to keep the business open, they may be able to file for Chapter 11 bankruptcy. A Chapter 11 bankruptcy will allow a business to create a restructured payment plan for its debts and stay open for business. A Chapter 11 bankruptcy will not dissolve a company but will require all creditors’ calls to cease. The business owner will create a proposal that illustrates the restructuring of all debt to the bankruptcy court, to which the creditors may or may not agree. A Chapter 11 bankruptcy is legally challenging and complex due to the fact that the debt restructuring must be done in a specific way beneficial to both the business owner and the creditors. Ultimately most of the creditors must agree to the debtor’s plan. Some advantages to filing for Chapter 11 bankruptcy include:
- Businesses do not have to shut down operations and may continue to operate.
- Businesses may develop a payment plan for their debt obligations.
- Foreclosure processes are typically postponed for a period of time.
- The business may either surrender or keep secured property and assets.
- Union contracts may be renegotiated or eliminated
- Leases may be negotiated under certain circumstances.
Chapter 11 bankruptcies are much more legally complicated and take substantially more time to complete than a Chapter 7 bankruptcy. However, Chapter 11 bankruptcies will allow a business owner to keep their business open for business. Making the decision regarding which type of bankruptcy to file can be a legally complex decision.
Contact an Experienced Bankruptcy Attorney
Making the decision to file for bankruptcy as a business can be an overwhelming endeavor. Both types of bankruptcies have their benefits and challenges. Additionally, as a business owner, navigating these bankruptcy laws can be complicated. Make sure you make the right financial choices for your business with your bankruptcy proceedings and contact the experienced West Palm Beach bankruptcy attorneys today at Kelley Kaplan & Eller at 561-264-6850 for a consultation.