Short Sale Resources for Homeowners

Business Bankruptcy

Business bankruptcy results when a business organization has more liabilities than assets. Under such a situation a business is not able to meet its financial obligations. Any type of business can file a business bankruptcy case.

Business bankruptcy provides relief to the owner of a business who has a lot of credit problems and is not able to find a way out of debt. However, bankruptcy can also lead to loosing one’s business and facing huge humiliation on account of its current credit standing. Many companies use bankruptcy to restructure their companies.

Business bankruptcy is of different types, each with its own set of rules. The type of business bankruptcy that one can file depends on the type of business.

Corporations and partnerships can file Chapter 7 bankruptcy or Chapter 11 bankruptcy. In proprietorships, Chapter 7, Chapter 11 or Chapter 13 bankruptcy may be filed. The basic difference between corporations and proprietorship is that in proprietorship, the owner files the business bankruptcy case. While in corporations or partnerships, the corporation is the one declaring bankruptcy and it does not in anyway affect the stakeholders.

The types of bankruptcy proceedings that can be used by are as follows:

Chapter 7 – In this type of bankruptcy, the debtor’s non-exempt assets are liquidated to pay off the debt. In the end, the debtor will receive a discharge of its debt by court’s order. Businesses or individuals may file Chapter 7 bankruptcy.

Chapter 11 – Big businesses often use this type of business bankruptcy. Under this type of bankruptcy, the debtor is allowed to keep its assets and continue the operation of the business as supervised by the court. Chapter 11 offers a lot of flexibility to a business who is considering business bankruptcy but its complexity makes it an expensive option.

Chapter 13 – This option is available to individuals with regular income. There are specific requirements as to how much debt a person or business has in order to be eligible. A payment plan is arranged over three to five years where the debtor is expected to make monthly payments to a trustee. The amount of the payment depends on the income of the debtor. Debts that are not paid at the end of the payment plan are wiped out.

Filing a business bankruptcy is a serious decision and it should be considered only when all other options have been tried. It would be wise to seek advice from a finance and legal professional before making any decisions.