Familiarizing Yourself With Chapter 7 Bankruptcy Laws
Your business is on the verge of collapse and like any other smart businessman who knows how to cut his losses, the next step would be to find out for sure if filing for bankruptcy is indeed inevitable. And if it is, what is the best option available? Should one file for Chapter 7 bankruptcy, Chapter 11 or maybe Chapter 13? This question is best answered of course when you know exactly what your business is. If your business is a corporation, a partnership or a company with a limited liability structure, you can file for Chapter 7 bankruptcy or Chapter 11. Be careful though if your business is a partnership; under a Chapter 7 bankruptcy filing, the business trustee can sue all the partners of the partnership if the value of their assets is not sufficient to pay their debts.
If your business is a Proprietorship, the proprietor must file the bankruptcy himself. Applicable in this situation are for an individual owner are Chapter 7 bankruptcy, Chapter 11 and even Chapter 13.
The dilemma of whether to reorganize of liquidate can be tricky. Before deciding on the best approach, one should consider the reasons why the business floundered in the first place and what direction should it take after everything has been resolved. First of all, there are certain limitations that reorganization can do for a company; it cannot realistically expand your market base, increase your revenue or even remedy fundamental management problems and a general lack of business skill. What it can do however is allow for some much needed cash flow to improve operations. You can also free yourself from certain leases or contracts which you fell may no longer be beneficial to the survival of your company and can even prevent some creditors from claiming important assets that contribute to this survival.
Depending on what is applicable, a Chapter 7 bankruptcy liquidation or reorganization or liquidation under Chapter 13 and 11 can provide owners a chance to pay their taxes as well as unpaid employee salaries. It is possible that the case can be converted to a Chapter 7 bankruptcy at this point or outright dismissal if the court sees that all necessary payments to creditors have been duly fulfilled. Remember that compared to a Chapter 7 bankruptcy, a case filed under Chapter 13 normally turns out to be more expensive. Reorganization under this chapter takes time as everyone concerned go back to the drawing board to re-draw the entire company's operations under any agreed-upon change. In essence, businesses that are simple based on limited assets and capitals are the best candidates for outright liquidation. Choose a Chapter 7 bankruptcy when you are fairly certain that the best future for the company may be a totally different company or that you discover that it has neither significant assets nor even a guarantee that it can still be revived after the bankruptcy filing has been resolved. Also consider Chapter 7 bankruptcy if the debts are just so huge and that restructuring them would simply be useless. If you happen to file for Chapter 7 bankruptcy as an individual, you might get a discharge for your trouble while as a corporation, you get nothing.
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