Businesses of all sizes have been impacted by the turbulent economy in recent years. While some have been able to regroup and move forward, others haven’t been so lucky. When it comes to business debts, there are several ways in which bankruptcy can help.
Balancing The Books
Business debts are more complicated in bankruptcy than personal debts, mostly due to the many different types of debt and the sensitive nature of the assets involved. Further, the type of business itself also places limitation into the type of bankruptcy that can be filed.
Chapter 7 bankruptcy can manage business debts in a manner similar to personal bankruptcy. When a business files for Chapter 7 bankruptcy, the assets of the company will be liquidated in order to satisfy debts to creditors. Loans, credit card bills, lawsuits against the business, suppliers and financial manager fees can all be included in the elimination through liquidation. Because a business is liquidated in order to satisfy debts, these businesses cease operations and any stake in the company is forfeited by the owner(s).
Chapter 11 bankruptcy is a reorganization proceeding in which debts are restructured and repaid, similar to personal Chapter 13. Filing for Chapter 11 typically involves one or more ways to absorb debt, obtain financing or acquiring income. A business may secure a merger with another entity, obtain financing from investors contingent on prioritized payment once revenue is made, the sale of assets or a total buyout to another corporation. All of these ways can allow the business to resolve debt obligations while remaining in operation.
The way in which the business is structured influences how the debts are discharged. Chapter 7 bankruptcy is generally pursued by sole proprietorships and LLCs (limited liability corporations); while multi-member LLCs and partnerships tend to seek Chapter 11. To learn whether business debts are best handled in Chapter 7 or Chapter 11, contact a St. Petersburg bankruptcy attorney.