Business Debts In Bankruptcy
When people think of bankruptcy they tend to picture a personal bankruptcy in which an individual files for the purposes of managing personal debts. While personal bankruptcies are the most common type of bankruptcy, they are not the only ones. Businesses and cities can also file for bankruptcy protection. When a business loses profitability and experiences problems paying debts to vendors, a bankruptcy may be one way to help resolve their financial troubles.
Business Chapter 7 Bankruptcy
A business Chapter 7 case is similar to that of a personal Chapter 7 case. The idea behind a business Chapter 7 filing is to obtain complete debt elimination. Businesses looking for total debt elimination are typically in deep into debt and are not forecasting a financial solution to return to profitability. Instead, they are aiming to cease operations and resolve debt liabilities with creditors.
A business Chapter 7 is not the best position to be in, as it is expected that the business will no longer be able to remain operative. In ceasing operations, any remaining business assets are liquidated for the purposes of satisfying debts owed to creditors. Business debts include items such as any remaining funds in the company, equipment, stocks or shares and any remaining inventory. All of these items are sold and the profits will be divided among creditors.
A business Chapter 7 can be fairly straightforward for small businesses or sole proprietorships. In businesses like these, the owner(s) can easily relinquish their rights and stake in the company during the bankruptcy process. Business Chapter 7 cases become more complicated for large businesses, or ones with multiple owners, as halting operations can be a lengthy process.
Chapter 11 Bankruptcy
A Chapter 11 bankruptcy is similar to a personal Chapter 13 bankruptcy, in which the main focus is developing a debt repayment plan while holding onto assets. Businesses that enter Chapter 11 are looking to reorganize their finances and resolve some of their debt burdens with creditors. The idea is to restructure the company in a way to alleviate financial pressure and return to profitability. Businesses rarely cease operations in a Chapter 11 case.
Most businesses will attempt to file a Chapter 11 whenever possible. After all, no business would prefer to go out of business unless absolutely necessary. A business that files for Chapter 11 has a better chance of holding onto assets throughout the bankruptcy process. Generally, the debt restructuring plan will include concessions to give creditors first crack at future profits or increase the creditor's stock share. Assets are rarely liquidated in a Chapter 11 case, unless a third party is taking over ownership during the process.
Chapter 11 cases are common among large businesses, corporations or franchises. Many sports teams have resolved their debts through Chapter 11, whereby they sold ownership to a third party in exchange for alleviating some of their debt burden. A Chapter 11 case is better designed to manage the debts and assets of large enterprises where multiple owners and shareholders take part in business operations.
Business Chapter 7 Bankruptcy
A business Chapter 7 case is similar to that of a personal Chapter 7 case. The idea behind a business Chapter 7 filing is to obtain complete debt elimination. Businesses looking for total debt elimination are typically in deep into debt and are not forecasting a financial solution to return to profitability. Instead, they are aiming to cease operations and resolve debt liabilities with creditors.
A business Chapter 7 is not the best position to be in, as it is expected that the business will no longer be able to remain operative. In ceasing operations, any remaining business assets are liquidated for the purposes of satisfying debts owed to creditors. Business debts include items such as any remaining funds in the company, equipment, stocks or shares and any remaining inventory. All of these items are sold and the profits will be divided among creditors.
A business Chapter 7 can be fairly straightforward for small businesses or sole proprietorships. In businesses like these, the owner(s) can easily relinquish their rights and stake in the company during the bankruptcy process. Business Chapter 7 cases become more complicated for large businesses, or ones with multiple owners, as halting operations can be a lengthy process.
Chapter 11 Bankruptcy
A Chapter 11 bankruptcy is similar to a personal Chapter 13 bankruptcy, in which the main focus is developing a debt repayment plan while holding onto assets. Businesses that enter Chapter 11 are looking to reorganize their finances and resolve some of their debt burdens with creditors. The idea is to restructure the company in a way to alleviate financial pressure and return to profitability. Businesses rarely cease operations in a Chapter 11 case.
Most businesses will attempt to file a Chapter 11 whenever possible. After all, no business would prefer to go out of business unless absolutely necessary. A business that files for Chapter 11 has a better chance of holding onto assets throughout the bankruptcy process. Generally, the debt restructuring plan will include concessions to give creditors first crack at future profits or increase the creditor's stock share. Assets are rarely liquidated in a Chapter 11 case, unless a third party is taking over ownership during the process.
Chapter 11 cases are common among large businesses, corporations or franchises. Many sports teams have resolved their debts through Chapter 11, whereby they sold ownership to a third party in exchange for alleviating some of their debt burden. A Chapter 11 case is better designed to manage the debts and assets of large enterprises where multiple owners and shareholders take part in business operations.
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