Whenever a business experiences financial difficulties, and is failing, it is an unpleasant experience for the business owner who has likely placed significant time, money and emotional resources into the business. If the business is struggling, they may wonder what their options are. Commercial bankruptcy is one option to consider for helping the business out of the difficulty it is facing. In general, there are two types of business bankruptcy available for struggling businesses.
It is important to keep in mind that business bankruptcy does not always mean closing your business. Chapter 11 business bankruptcy, for instance, is a reorganization bankruptcy that allows the business to continue to operate and, ideally, returns the business to productivity following the bankruptcy process. Alternately, Chapter 7 business bankruptcy provides for assets to be sold to repay creditors. If the business is not a corporation but a sole proprietorship, the owner may also be entitled to a discharge of most of his or her debts.
During the Chapter 11 bankruptcy process, the current management of the company typically continues daily operations of the company as it pays back its restructured debt. During the Chapter 7 bankruptcy process, a trustee is appointed to sell the assets of the business to repay creditors. The bankruptcy process can range from approximately 45 days to a year or even longer but depends on the nature of the bankruptcy. It is necessary to obtain court approval for the bankruptcy, and in some circumstances, creditor approval is also needed.
Once the requirements and obligations associated with the bankruptcy process have been fulfilled, the debt discharge can happen, and, hopefully, relatively quickly. Though no business owner wants to find themselves in the position of having a struggling business, it is important for them to be familiar with the legal options available to help and which option may be best for their circumstances.
Source: AllBusiness, "Facing the Inevitable: When Business Bankruptcy May Be Your Only Option," Mike Wood, Accessed Dec. 27, 2016