Business Bankruptcy Options

If a business has huge debt, the owners or incorporators may opt to file for bankruptcy. Filing for bankruptcy is not an easy decision and selecting the kind of bankruptcy to file takes some planning to do. They should carefully choose what type of bankruptcy to file from the following options: Chapter 7, 13, 11 and 12. Generally, the owners must ask advice from an experience bankruptcy lawyer to know the right kind of bankruptcy to file. So if your company is in serious financial debts here are the four chapters of the bankruptcy code to choose from:

Chapter 7 bankruptcy

Chapter 7 bankruptcy is also called straight bankruptcy wherein business assets will be sold in order to compensate all the creditors. As petition is filed, the bankruptcy court will assign a trustee to administer the selling of the assets and the distribution of money to creditors. This option is only recommended for businesses with no other viable options to pay for their debts. In selecting Chapter 7, the business owner don’t need to make a plan to restructure their business but to get out of debts in the fastest way possible and to start a new life.

Chapter 11 bankruptcy

This type of bankruptcy option allows a business to make a plan to restructure their business in order to make it survive. As the petition is given to the court and approved by it, creditors are advice to stop interference. Then the debtor will make a plan that he or she will negotiate to the creditors by giving them partial payment of all the debts owed. The creditors have the option to file a competing plan to the court if they think that the plan is not made for their interest. This bankruptcy option is recommended for business with a substantial amount of debts but still have the means to pay for it through regular income and total amount of assets.

Chapter 13 bankruptcy

You might be wondering why Chapter 13 is an option here because this bankruptcy option is designed to help out individuals not businesses. However, as a proprietor of a flailing business, the owner can file Chapter 13 for themselves in order to cover up the failure of their business. Private practices are covered by this bankruptcy option.

In this business bankruptcy option, the debtor will make a repayment plan that must be approved by the court and creditors. This option protects the property and assets of the debtor while giving permission to creditors to continue collecting payments in a timely manner. The debtor must have a regular income that can cover installment payment of these debts after expenses were deducted. Usually the time span of paying for debts in this kind of bankruptcy is 3 to 5 years. Upon the end of the repayment period and there are still some debts not paid, it will be discharge by the court depending on the agreement made with the creditors. However, not all debts can be covered by this option including alimony, child support etc.

This business bankruptcy option is recommended for individuals who ventured in business that failed and are deeply ingrained with debt and have personal assets they want to keep.

Chapter 12 bankruptcy

Chapter 12 is amazingly similar to Chapter 13 bankruptcy except for a few details. This bankruptcy option is made for business of family farms only. It is made to permit the family to stay in business while paying off their debts taking into account the unpredictability and seasonal nature of agriculture which is very advisable for families with farming businesses.

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