What Type of Bankruptcy Should Be Used For A Business

Business can be great for any entrepreneur but is also can be very difficult to successfully operate a business. A harsh reality is a business will fail, and they are some business owners who may file bankruptcy. They are a few types of bankruptcies that a commercial business can file. Before filing for bankruptcy, a business must decide what will be the plans for the business moving forward. A plan to totally liquidate a business or reorganize a business will influence the type of bankruptcy a business will file. There are thousands of businesses who file bankruptcy annually. 

The Types of Commercial Bankruptcies

There are few types of bankruptcies available to businesses are: 


  • Chapter 7 Bankruptcy

  • Chapter 11 Bankruptcy

  • Chapter 13 Bankruptcy

    Chapter 7 bankruptcy can be filed by corporations, partnerships, and sole proprietorships. Some commercial bankruptcy Scarborough me could be a Chapter 7 bankruptcy. Chapter 7 is used for the liquidation of the business. A business would decide to use Chapter 7 when there are no significant assets. The bankruptcy court will appoint a trustee, and the trustee must distribute any assets to creditors. When a sole proprietor files a chapter 7 and the trustee have distributed all the assets and the creditors have been paid, the sole proprietor will receive a discharge. The discharge shows the sole proprietor or owner of the business would no longer be on the obligation for debts. Under chapter 7, and corporations and partnerships do not see a discharge. Chapter 11 bankruptcy is used when a business has a chance to get out of debt. Chapter 11 bankruptcy allows the business to restructure or reorganize, a payment plan for creditors over a certain period of time. The bankruptcy court will also assign a trustee. The plan for reorganization and how creditors will be paid will be filed. The creditors would have a chance to vote on the plan and the bankruptcy court must approve the plan. The process of submitting a plan for approval can last up to a year. Chapter 13 can be used by a sole proprietor who has a few creditors. There is a debt limit shows that it cannot be over $394,000 in unsecured loans and over $1.2 million in secured loans. The debt limit can change and changes are influenced by inflation along with the cost of living. A reorganization planmust be filed with the use of Chapter 13. It normally allows 3 to 5 years to repay creditors.

    Causes That Leads Businesses To Choose Bankruptcy


Poor market conditions can cause a business to struggle to a point that a business might consider filing for bankruptcy. Entrepreneurs have to make many decisions, and there will be occasions sometimes wrong decisions are made without proper planning and this could send business in a downward spiral that could end in bankrupt court. The company may have problems finance and is business operation and if there are any problems that would deter them from making payments were also hurt the business and could lead to bankruptcy.

 

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