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Key differences in business bankruptcy types

On Behalf of | Dec 20, 2021 | Blog, Business Bankruptcy |

As a business owner, you may struggle with the financial burdens of an economic downturn. Whether the cause is your business plan or the state of the economy, learning about your bankruptcy options may prove helpful.

Bankruptcy for businesses typically falls into one of two main chapters: 7 and 11. Discover some of the differences between these two bankruptcy filings so you may make an informed decision on which one works better for your unique situation.

Chapter 7 liquidation

Both individuals and businesses may choose to file for liquidation. Doing this requires you to sell anything of value to repay debts. Even if your assets do not cover all the money you owe, the bankruptcy judge discharges the remaining debt at the end of the process. Filing for Chapter 7 is beneficial if the debt is too large to reorganize and pay off. It also helps if the business does not have a substantial amount of assets.

Chapter 11 reorganization

Under Chapter 11, your business may have the opportunity to reorganize debt. If you believe you can save your business by dumping old leases and vendors and paying off creditors down the road, this method may work for you. A trustee appointed by the court oversees your reorganization plan and ensures that you follow through with it. Under recent legislation, a business filing under Chapter 11 no longer needs creditors’ approval to reorganize. Only the trustee needs to give the plan the green light.

A business may thrive again under the proper tutelage and with the weight of debt lifted. However, if this does not appear possible, then liquidation may prove the right way to move. Finding guidance through this trying time is key to coming out the other side successfully.

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