Bankruptcy Laws

Small Business Bankruptcy

Not only an individual can file bankruptcy, a small business bankruptcy is also common. How a small business bankruptcy works depends on the legal structure of the small business. Most small business bankruptcy cases are either chapter 7 bankruptcy cases, chapter 13 bankruptcy cases or chapter 11 bankruptcy cases, although some may file chapter 12 bankruptcy.

Filing chapter 7 small business bankruptcy

Since chapter 7 small business bankruptcy means liquidation of most of the business assets if not all, many small businesses prefer to file chapter 11 bankruptcy instead. If a small business wishes to continue to operate, filing chapter 7 small business bankruptcy may not be a wise decision.

Chapter 11 small business bankruptcy allows the business to retain most of its assets and reorganize while continuing to run the business as usual.

Small business bankruptcy
Filing chapter 11 small business bankruptcy

The reorganization plan must be submitted by the small business and approved by the bankruptcy court whenever a small business files chapter 11 bankruptcy. Creditors of the small business will have a chance to evaluate the plan, then either approve or disapprove. However, the bankruptcy court is the ultimate judge of whether the reorganization plan submitted is good enough or not. Some of the debts may be discharged while others are to be paid over time.

With a reorganization plan, the small business can end some contracts, recover assets as well as change its operation so that the business can profit again and thus repay the debts. It is common for a small business undergoing a reorganization type of bankruptcy to emerge out of bankruptcy with a new small business loan.

Which business can file chapter 11 small business bankruptcy?

Small businesses that are corporations, partnerships, and sole proprietorships can file chapter 11 bankruptcy to avoid having to shut down the business and liquidate all assets. Reorganizations and debt adjustments are usually more favorable for small businesses than liquidation.

Can a small business file chapter 13 bankruptcy?

Individuals and self employed business owners can file chapter 13 bankruptcy as long as the small business is not incorporated and the business owners is not filing chapter 13 bankruptcy on behalf of the small business. There are also debt limits that the person seeking to file chapter 13 bankruptcy must satisfy.

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