Types of Business Bankruptcy
If you have considered filing for business bankruptcy, you will first need to determine which type of bankruptcy is appropriate. Here are the types of business bankruptcy, including bankruptcy proceedings for businesses filing individual tax returns. Before you decide to file bankruptcy, you will need to seek the advise of an attorney who specializes in bankruptcy filings and processes.
A bankruptcy can be, and usually is, voluntary, but a bankruptcy can also be involuntary, initiated by creditors.
- Chapter 7
Chapter 7 bankruptcy is commonly referred to as "liquidation," meaning that the business assets are liquidated, or sold, to pay the debts of the business. In this type of bankruptcy, a trustee is appointed by the court to oversee the process and make sure that creditors are treated equitably. The assets are sold and divided between creditors, after the fees and costs of the trustee are paid. Chapter 7 bankruptcy usually signifies the end of a business.
- Chapter 11
Chapter 11 bankruptcy is designed to help a company which is having difficulty paying its debts, but which may be able to continue operating with some help. Sometimes this form of bankruptcy is called "restructuring." A reorganization or restructuring plan is compiled and implemented with a court-appointed overseer in charge. Creditors may also propose an alternate plan. If the plan succeeds, a business may emerge from Chapter 11 and continue operating without court oversight.
- Chapter 13
A Chapter 13 bankruptcy is really a personal bankruptcy used by an individual who is involved in a failed or failing business who wants to protect his or her personal assets. A sole proprietor, for example, may file for bankruptcy under Chapter 13 provisions. Like Chapter 11, the business is placed on a reorganization plan which is supervised by the court.
Bankruptcy Process
The bankruptcy process begins with a petition to the court, including financial information and a list of creditors with the amounts owed to each.
If the court grants the petition, a bankruptcy trustee is appointed to oversee the process.
The trustee meets with creditors and attempts to work out arrangements for repayment of debts.
In a reorganization, creditors are encouraged to continue to work with the company to keep it going.
Also in a reorganization, one or more committees may be appointed to oversee the interests of the employees, shareholders, and creditors.
The End of the Process
In a liquidation (Chapter 7) bankruptcy, the process ends when all assets have been liquidated and all creditors paid. The company no longer exists.
In a
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