How Does Bankruptcy Affect Your Business?

Bankruptcy allows businesses to restructure their debts or liquidate their assets to pay off creditors. To put it into perspective, it is a way for companies to get a fresh start, allowing them to either continue operating or close down in an orderly manner.

Those looking to file for bankruptcy should find the information here helpful.

Types Of Bankruptcy For Businesses

There are several different types of bankruptcy that businesses can file for. The most common ones are Chapter 7, Chapter 11, and Chapter 13. The type of bankruptcy a business chooses will depend on its specific circumstances and financial needs.

Chapter 7 Bankruptcy

Chapter 7 is a common type of bankruptcy for businesses and involves selling the business’s assets to pay off creditors. Trustees dissolve the business, and the creditors forgive the debts. Businesses that are no longer viable and do not have the means to pay off their financial obligations typically use this type of bankruptcy.

Chapter 11 Bankruptcy

Larger businesses that want to restructure their debts can file for Chapter 11 bankruptcy to remain in operation. Under Chapter 11 bankruptcy, the business creates a plan to pay off its debts over a period of time, usually in several years.

The courts and creditors must approve this plan. If they approve it, then the business can continue operating while paying off its debts.

Chapter 13 Bankruptcy

Under Chapter 13 bankruptcy, the business or individual creates a plan to pay off their debts over a period of time, usually three to five years. The courts and creditors must also approve this plan and lay out the conditions suitable for the one filing.

Filing For Bankruptcy

To file for bankruptcy, a business must first meet specific eligibility requirements. For example, it must be a corporation, partnership, or sole proprietorship. It must also be unable to pay its debts as they come due.

Filing for bankruptcy begins with filing a petition with the bankruptcy court. This petition includes information about the business’s financial situation, debts, assets, and income. The business must also provide a list of its creditors and the amount of money it owes to each.

Once the business files, the bankruptcy court will issue an automatic stay. This action prohibits creditors from taking any further action to collect the debts the business owes them. It allows the business to restructure its debts and devise a plan to pay off its creditors. It may decide to sell its assets to pay off debts or opt for a plan to pay during a period until the business becomes profitable again.

Suppose the business is filing for Chapter 7 bankruptcy. In that case, the court will appoint a trustee to oversee the sale of the business’s assets and the distribution of the proceeds to creditors. If the business is filing for Chapter 11 or Chapter 13 bankruptcy, the court will review the plan to pay off debts and decide whether to approve it.

Bankruptcy Petition Assistance For Your Business

Overall, businesses struggling to pay their debts and needing a fresh start see bankruptcy as a last resort. It allows them to restructure their debts or liquidate their assets to pay off creditors. More importantly, it allows them to either continue operating or close down in an organized and legally-acceptable manner.

Filing for bankruptcy can be a complex and time-consuming process. It is important for businesses to seek the advice of a bankruptcy attorney to ensure that they comply with all legal requirements. You may contact Austin Bankruptcy Lawyers for more information on bankruptcy for businesses.

Summary

Bankruptcy allows businesses to restructure debts and pay off their creditors. Aside from the usual Chapter 7 and Chapter 13 bankruptcy that companies can file for, Chapter 11 is also an option. The business can create a plan to pay off debts, which the trustees will then approve. Any business is eligible. Depending on the payment plan, the court will decide whether or not they approve it.