A Legal Firm Dedicated To


  1. Home
  2.  – 
  3. Business Bankruptcy
  4.  – A business’ situation dictates which bankruptcy chapter to use

A business’ situation dictates which bankruptcy chapter to use

On Behalf of | Nov 24, 2023 | Business Bankruptcy, Chapter 11, Chapter 7 |

Florida businesses will inevitably have their ups and downs. If there are financial issues and bankruptcy is needed, it is important to have an idea of the preferable option based on the circumstances. This is when it is important to know whether the business can survive and get back on its feet and if it is better to liquidate it and move on. Different chapters of bankruptcy are available for each situation.

Understand liquidation vs. reorganization

Chapter 7 is often referenced as one of two main choices for personal bankruptcy. With it, people will have their property liquidated by surrendering it to a trustee who will in turn sell it to repay creditors. In general, people who have a limited amount of property can clear their debt with a Chapter 7 and will not need to lose significant property.

For a business, a liquidation is also possible through Chapter 7. Since businesses will have items that can be sold, it is important to remember that they will likely lose these properties.

For businesses that do not see a pathway to profitability and have overwhelming debt that they will not be able to repay, Chapter 7 could be the preferred alternative. Those who are using a Chapter 7 business bankruptcy are ending the business. On a positive note, their debts will be cleared. However, they will need to start over professionally.

A Chapter 11 filing is a reorganization of the business. This is quite common and many businesses have used Chapter 11 to keep their business going and have a payment plan to repay their creditors. They have then gone on to achieve great success. With Chapter 11, the debtor files a plan within four months after filing for bankruptcy.

The creditors can assess the plan to see if it is viable. It can either be confirmed or rejected. Using Chapter 11, the debt load can be reduced substantially. Some are discharged completely. Others are paid back in part. If there are contracts the debtor can no longer pay or leases they want to eliminate, they can do so through Chapter 11. The business itself can be reorganized so profitability can be achieved.

A business can achieve debt relief through bankruptcy

Those operating a business who are confronted with massive debt they cannot pay should understand the benefits of business bankruptcy. With that, it is essential to know which chapter is better for them. This hinges on what they owe, whether the business has a chance at a turnaround and more. For these issues and making the right decision, it is wise to be prepared.