Are you an owner of a small business being strangled by huge debts and limited cash flow? Are you unable to repay your priority, secured and other debts? Do you use money from taxes withheld for business purposes? If you are in such a circumstance, the following business bankruptcy FAQs could help you understand the things that are involved:
1. What are the various kinds of business bankruptcies?
Chapter 7 or Chapter 11 bankruptcy can be filed for by sole proprietorships, partnerships, LLCs and corporations. Chapter 7, which is liquidation, involves non-exempt business assets being put up for sale, and the proceeds are then used to repay creditors. The business ceases to exist after the bankruptcy process is complete. Chapter 11 is business reorganization. It allows businesses more time to be able to repay debts. Businesses that have come to realize that there is no longer any point to continue business operations could file for Chapter 7, while those that are still feasible could file for a Chapter 11 business bankruptcy.
2. What are the issues of a business bankruptcy filing?
Sole proprietors must file for a bankruptcy under their own name given that a sole proprietorship type of business is considered as an extension of the owner of a business. In a Chapter 7 bankruptcy relating to a partnership firm, the partners face the risk of being sued by the case trustee if it so happens that the business assets are not sufficient to repay the debts.
3. Chapter 7 or Chapter 11 business bankruptcy - which one must a business choose?
Business owners have to understand that by filing for a Chapter 11 bankruptcy, which would reorganize the business, he cannot just expect much better market conditions. A business owner should only opt for Chapter 11, if his business could generate future profits based on the business’ strengths at present. A Chapter 11 business bankruptcy would help owners free up a bit of cash, which could be used to run business operations on a day-to-day basis. It will also help the business owner to reject expensive leases and to prevent business assets from being taken over by creditors.
4. What transpires when a Chapter 11 bankruptcy process fails?
A Chapter 11 bankruptcy that fails would be converted by the court to a Chapter 22 bankruptcy, which is like that of a Chapter 7. In this type of bankruptcy, business assets will be sold, and after a Chapter 22 bankruptcy process is complete, the business would not exist anymore.
5. What should the business owners take note of?
Before considering a Chapter 11 bankruptcy, priority debts of business have to be calculated first. If priority debts could not be paid, then he couldn’t be aided by a Chapter 11 business bankruptcy. He should also check how much his secured debts are. Secured creditors don’t decrease a business owner’s debts because the former could always take possession of the assets of the business. Business owners have to put together a list of his creditors and determine their classification and their priority, before he finally decides on a particular business bankruptcy category.
Business owners have to focus on these critical factors before they seek protection under either a Chapter 7 or a Chapter 11 business bankruptcy.
1. What are the various kinds of business bankruptcies?
Chapter 7 or Chapter 11 bankruptcy can be filed for by sole proprietorships, partnerships, LLCs and corporations. Chapter 7, which is liquidation, involves non-exempt business assets being put up for sale, and the proceeds are then used to repay creditors. The business ceases to exist after the bankruptcy process is complete. Chapter 11 is business reorganization. It allows businesses more time to be able to repay debts. Businesses that have come to realize that there is no longer any point to continue business operations could file for Chapter 7, while those that are still feasible could file for a Chapter 11 business bankruptcy.
2. What are the issues of a business bankruptcy filing?
Sole proprietors must file for a bankruptcy under their own name given that a sole proprietorship type of business is considered as an extension of the owner of a business. In a Chapter 7 bankruptcy relating to a partnership firm, the partners face the risk of being sued by the case trustee if it so happens that the business assets are not sufficient to repay the debts.
3. Chapter 7 or Chapter 11 business bankruptcy - which one must a business choose?
Business owners have to understand that by filing for a Chapter 11 bankruptcy, which would reorganize the business, he cannot just expect much better market conditions. A business owner should only opt for Chapter 11, if his business could generate future profits based on the business’ strengths at present. A Chapter 11 business bankruptcy would help owners free up a bit of cash, which could be used to run business operations on a day-to-day basis. It will also help the business owner to reject expensive leases and to prevent business assets from being taken over by creditors.
4. What transpires when a Chapter 11 bankruptcy process fails?
A Chapter 11 bankruptcy that fails would be converted by the court to a Chapter 22 bankruptcy, which is like that of a Chapter 7. In this type of bankruptcy, business assets will be sold, and after a Chapter 22 bankruptcy process is complete, the business would not exist anymore.
5. What should the business owners take note of?
Before considering a Chapter 11 bankruptcy, priority debts of business have to be calculated first. If priority debts could not be paid, then he couldn’t be aided by a Chapter 11 business bankruptcy. He should also check how much his secured debts are. Secured creditors don’t decrease a business owner’s debts because the former could always take possession of the assets of the business. Business owners have to put together a list of his creditors and determine their classification and their priority, before he finally decides on a particular business bankruptcy category.
Business owners have to focus on these critical factors before they seek protection under either a Chapter 7 or a Chapter 11 business bankruptcy.
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