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Business bankruptcy: Chapter 7 vs Chapter 11

On Behalf of | Feb 21, 2022 | Bankruptcy |

Sometimes, things may not work out for your business. You may find it impossible to meet your financial obligations, and filing for business bankruptcy may be the only way out. However, you may be unsettled about the type of bankruptcy you need to file for your business.

Below are some of the differences between Chapter 7 and Chapter 11 bankruptcy that could help you make the best decision for your business.

The continuity of your business

With Chapter 7, you pretty much have to wind up everything and shut down the business. Assets are sold off to pay creditors, and business operations cease.

On the other hand, Chapter 11 involves restructuring operations to get the business back on its feet. Its purpose is to ensure continuity of operations and ensure the business can pay off creditors sustainably.

The fate of employees

With Chapter 7, employees are laid off, and those owed wages become creditors. However, it is different in Chapter 11, where although employees may be laid off, others may be retained. There are some cost-cutting measures that could be implemented to help the company recover.

Costs

Filing for Chapter 11 is more expensive because it involves a reorganization and a debt repayment plan. However, it is more straightforward with Chapter 7, where you aim towards winding up. Still, this does not necessarily mean that it is an easy process.

What is your best choice?

Ultimately, it all depends on the state of your business. If you believe the business can turn around financially, Chapter 11 could be your best bet. However, keep in mind that you may not be in total control of the business under the restructure. Therefore, it is essential to learn more about what to expect before making that big decision.