3 Different Types of Bankruptcy for Businesses

When running a business, you know that cash flow is sometimes more than at other times. Sometimes you can pull out of the slump, and other times you see no way out. While bankruptcy might be your only option, it is important to understand the different types of bankruptcy to know which is the best for you.

Chapter 7

In a Chapter 7 bankruptcy, you will be liquidating all of your assets to pay your debts. This option is only used if you don’t plan on keeping your business open because it doesn’t include a repayment plan. This option is good if you have so many debts that you don’t have a way to restructure them and keep the business open. A trustee will be appointed by the court and will distribute your assets among all of your creditors. Once that happens, your bankruptcy will be discharged, and the business owner will no longer have any obligation to those debts.

Chapter 11

If you have even a fraction of a chance of saving your business, Chapter 11 might be a good choice. This option is typically used for businesses that are partnerships or corporations. Chapter 11 can also be used for sole proprietorships with income levels that are too high to qualify for Chapter 13. Under a Chapter 11 business bankruptcy Columbia MD, a company continues to run and reorganizes its debts, with an appointed trustee overseeing everything.

As part of the restructuring, a business develops a plan to repay some creditors and discharge their debts to others. Once the court and the debtors are on the plan, the company can move forward. This type of bankruptcy is very time-consuming and can be quite complex.

Chapter 13

If you are a sole proprietor, then Chapter 13 could be a good option for you. It is used for small businesses that seek to reorganize instead of liquidating all of their assets. The reorganization also allows your business to stay open, unlike with Chapter 7. Under Chapter 13, you create a detailed payment plan that explains how you plan on repaying your debts and file it with the court.

A formula will be used to calculate how much must be repaid in the bankruptcy. It will consider how much you earn, how much property you own, and the total amount you owe. Because your personal assets will be tied to your business as a sole proprietor, you won’t have to worry about losing important assets such as your car or home with Chapter 13.