There are different types of commercial bankruptcy with different benefits tailored the different financial circumstances businesses may find themselves in. A Chapter 11 reorganization bankruptcy, for instance, can provide breathing room to a struggling business so it can reorganize its debts and get back on its feet once again. Alternately, a Chapter 7 liquidation bankruptcy can shore up losses and protect the owner of a small business.
Chapter 7 bankruptcy helps a business with overwhelming debt by liquidating business assets to repay creditors and, when a business is a sole proprietorship, by discharging the debtor's financial obligations. If the owner of the business is personally liable for any of the debts, this can be an important step to take. Chapter 11 bankruptcy, on the other hand, can help the business take the time it needs to reorganize its debt to repay creditors and return to profitability. While debt obligations are suspended during the process, a struggling company can also obtain the time needed to pursue cost-saving measures that can include things like selling assets.
Following a stay of creditor collection activity, the creditors can review the reorganization plan and may agree to recover less than the debt owed to them because of the potential future benefit of the company's profits once it emerges from the bankruptcy process and is once again profitable. The creditors vote on the reorganization plan, and the court has final say over it. For the same reasons, creditors may also agree to renegotiate contracts in favor of future and continuing business from the company.
Whatever the complex business bankruptcy issues the business is facing, there are different business and commercial bankruptcy options available to help. It is useful to understand the details of the different bankruptcy options to pick the best match for the needs and goals of the struggling business and its owners.
Source: Smallbusiness.chron.com, "The Positive Effects of Bankruptcy on a Business," Sam Ashe-Edmunds, Accessed Jan. 10, 2017