Business Bankruptcy Law

Business bankruptcy laws are at times complex. Small business owners should always seek competent legal help from a bankruptcy attorney before considering or filing for small business bankruptcy. Often, there are other alternatives available.

When business owners cannot afford to pay their debts, there comes a time when they consider company bankruptcy as a way to get rid of the debt without significant legal costs. Filing bankruptcy also prevents your creditors from collection activities, a source of emotional strain for some.

Corporations, LLCs & Partnerships

Corporations, limited liability companies and partnerships are legal entities separate from their shareholders or partners and can file Chapter 7 or Chapter 11 bankruptcies. Following is more information:

Proprietorships

Proprietorships are an extension of the owner, and cannot file bankruptcy on their own. Because of this, the assets and the liabilities of the business are really those of the proprietor or owner. The owner(s) must file individual Chapter 7, 11, or 13 of the Federal Bankruptcy Code.

Chapter 7 Bankruptcy

Under a Chapter 7 bankruptcy, a company ceases all operations and goes out of business. A trustee is appointed to liquidate the company’s assets and the proceeds go toward paying off the company’s investors and creditors.

Chapter 11 Bankruptcy

Chapter 11 bankruptcies allow the company in some situations to keep operating under a reorganization plan. This plan allows the business to reorganize itself and work towards being profitable again; Management continues to manage the day-to-day operations, but the bankruptcy court must approve major decisions.

There have been a number of Chapter 11 bankruptcies in the news lately … GM, KB Toys, ARG Enterprises, Buffets Holdings (Old Country Buffet), Wickes Furniture Co., Sharper Image, Linens ‘n Things, Mrs. Fields Famous Brands, Circuit City, and a whole host of others.

(Chapter 11 bankruptcy filings are not always solely because of financial troubles. Take, for instance, the Chicago Cubs corporate owner Tribune Co., itself already in Chapter 11, is considering a “1-2 day” Chapter 11 filing so the team can thereafter be sold without fear of possible future claims by Tribune creditors. AP News.)

Chapter 12 Bankruptcy

A Chapter 12 bankruptcy is used by family farms and fishermen.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is for individuals, and is, in its simplest form, a “repayment” plan of 3-5 years under the court’s supervision.

Qualified Legal Help

If you are considering filing bankruptcy for your business, it is important to realize there may be other options available to you. Sometimes bankruptcy is the best option. Either way, competent legal help should be sought to get the best advice about business bankruptcy laws.