Business receivership is seldom the best way. Here
are better alternatives.
If your business is struggling and you think it might benefit
from a reorganization or all-out bankruptcy, it’s important
to know all you can about corporation bankruptcy. Not knowing
the facts could be harmful.
If you want to file for corporation bankruptcy, there are
two main choices: Chapter 7 bankruptcy and Chapter 11 corporation
bankruptcy. These two sections of the bankruptcy code set forth
rules and regulations for filing corporation bankruptcy.
Details of Chapter 7 and Chapter 11 Corporation Bankruptcy
Experts also call Chapter 7 corporation bankruptcy a liquidation
bankruptcy. This type of bankruptcy is the most common type
filed in the United States. Many businesses choose this type
of bankruptcy when they will shut down business, or “go
out of business” and liquidate all their assets.
For smaller companies, a Chapter 7 corporation bankruptcy
usually means the company goes out of business, sells all assets
and employees lose their jobs. Sometimes the company makes
this choice based on hardship within the company (when there
are debts to pay that far exceed what the company makes). Other
times the company's creditors make the choice to file Chapter
7 corporation bankruptcy. In either event, the court immediately
appoints a trustee and the process of selling the company’s
assets begins.
When a larger company files Chapter 7 bankruptcy, the shareholders
often just liquidate and sell pieces of the company, while
the rest of it stays intact. Employees may or may not lose
their jobs, depending on who buys the various parts of the
company and what their plans are.
A Chapter 11 corporation bankruptcy is a little less cut and
dry. In this type of bankruptcy, the company is “reorganized” and
during the reorganization period, the court will excuse some
debts while forcing the company to pay back others during the
bankruptcy proceedings.
Many businesses choose Chapter 11 corporation bankruptcy because,
while it weakens the company temporarily, it strengthens it
for future business endeavors. Both small businesses and large
corporations can benefit from Chapter 11 corporation bankruptcy.
Often people think of Chapter 11 as a bankruptcy filing for
larger companies, but many smaller companies successfully use
Chapter 11 bankruptcy as a means to an end of strengthening
the company while removing debt.
Some critics of the Chapter 11 corporation bankruptcy code
charge that it allows an “out” clause for companies
by allowing them to get rid of many debts. As well, many companies
emerge from the bankruptcy mostly unscathed. It’s important
that companies use the Chapter 11 filing judiciously and intelligently,
then.
Potential
problems for owners with failing businesses
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