Chapter 11 vs. Chapter 7: Choosing the Right Bankruptcy Option for Your Business

Are you running a small business and tangled in debts? Don’t panic. At this time, you need to stay strong and make the correct decisions. That is the only way to survive!

You may be thinking of filing for personal bankruptcy. If that’s true, then you need to understand its fundamentals. Remember, there are two main types of bankruptcy: Chapter 7 Business Bankruptcy and Chapter 11 bankruptcy cases. Once you study them, you will automatically understand which one applies to your business. This can be really helpful for you in the long run. So, let us go through the basic concepts of these two bankruptcy cases.

Chapter 7 Bankruptcy: What are the fundamentals?

This is also known as the “liquidation” bankruptcy. This confirms that your business will shut down. It also suggests that your assets will be sold to clear your debts. If you are running a business from which you are gaining no profits, you might wish to shut it down. In such a situation, when you shut a business and do something else, chapter 7 is the best way to go.

If you are operating your business as a sole trader, you must file Chapter 7 in your capacity. This may shield your personal property from being collected by business creditors. You may have to prove “means” if your business debt is not more than your non-business debt. Some property may not be relinquished for sale, enabling you to retain some of the assets and, therefore, possibly continue some portion of your business.

Partnerships, corporations, or LLCs can file for Chapter 7 as businesses if the partners or owners choose to do so. In these circumstances, the debt is for the business, but partners may be personally liable for the company’s loans. There will be no exemptions for these kinds of businesses, meaning all their properties will be disposed of.

Chapter 11 Bankruptcy: What are the fundamentals?

Chapter 11 vs. Chapter 7: Choosing the Right Bankruptcy Option for Your Business

It is also called “reorganization” bankruptcy. This primarily means that your business can remain operational. Besides, you can run your business and slowly pay your debts off.

When you dispose of your creditors, you must follow a strict repayment schedule set by the court. This chapter is for you if you think your business is capable of generating profits in the future. Then, you need to consider what changes your business should have.

Chapter 11 additionally provides an opportunity to renegotiate the payment terms with creditors. Once you talk with your creditors, you can begin to pay the debts. Your business will continue. You will be in control of the business. Once you pay off all your debts, you can again continue with your business goals.

What is the cost of filing for personal Bankruptcy?

Both types of bankruptcy involve some basic charges. You need to pay filing fees, attorney fees, etc. Chapter 7 usually costs less. Moreover, it is quicker and simpler. Chapter 11 can be more expensive. It is also complex and needs a longer time frame.

Conclusion

You need to confirm what you want to go for. First, understand the difference between  Chapter 7 and Chapter 11. Second, identify what conditions apply to your business. If you have given up your expectations from the business, go for Chapter 7. If you think your business still has a scope to recover, Chapter 11 is a great choice.

You need to do proper research before filing for personal bankruptcy. It involves many rules and conditions. To get the best results, we suggest you consult a professional lawyer. These lawyers know exactly what to do so that you can protect your assets as best you can!