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Business Bankruptcy

Corporations, Limited Liability companies and Partnerships can file Business Bankruptcy as Chapter 7 or Chapter 11, while proprietorships cannot. A proprietor must file bankruptcy individually, and may file Chapter 7, Chapter 11 or Chapter 13 Bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy involves the total liquidation of the business assets in order to repay debts. If you qualify for Chapter 7, a court-appointed trustee will collect all non-exempt assets, sell them and distribute the proceeds to creditors. Chapter 7 Bankruptcy, whether for the individual or a business, may be the best choice when:

  • The business has no future.
  • The business has no substantial assets.
  • The debts are too great to be reorganized.

Chapter 11 Bankruptcy

Debtors who prefer to remain in business, have substantial assets, and wish to avoid liquidation may choose Chapter 11 Bankruptcy. While Chapter 7 Bankruptcy is a liquidation of debt, Chapter 11 Bankruptcy is a reorganization of the debt. Under Chapter 11, the business is restructured so that it may meet its obligations from future earnings. Under Chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization. The downside of Chapter 11 bankruptcy is that it is expensive and time-consuming and can add stress to an already weakened business.

Chapter 13 Bankruptcy

If the business is a sole proprietorship, it may be eligible for relief under Chapter 13 of the Bankruptcy Code. Chapter 13 Bankruptcy enables individuals who have steady income to repay all or part of their debts over a specified time period. One of the main advantages of Chapter 13 is the an opportunity to save their homes from Foreclosure. By filing Chapter 13, individuals can stop Foreclosure proceedings and may cure delinquent mortgage payments over time. Any individual or Proprietorship is eligible for Chapter 13 relief as long as the individual meets the qualifications. A Partnership or Corporation must file Chapter 11 Bankruptcy.

Only a qualified bankruptcy lawyer can determine if your financial situation warrants filing Bankruptcy. Consulting with a bankruptcy attorney should be the first step for anyone considering filing Chapter 13 Bankruptcy to get relief from overwhelming debt.

» Learn about Chapter 7 Bankruptcy

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