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Choosing the form of bankruptcy that is right for your business

On Behalf of | Jul 1, 2024 | Business Bankruptcy |

If your business has been struggling financially for a while and you are looking for a fresh start, filing for bankruptcy may be the solution. It provides debtors relief from creditors and the chance to find a solution to their financial issues. Seeking advice from an experienced attorney can help you understand how bankruptcy can be a tool to help you with your finances and your options.

Typical forms of bankruptcy for businesses include Chapter 7 and Chapter 11, respectively. Both can give your business the respite that it needs. Deciding which one to file for depends on several factors, and it may help if you understand the difference between the two.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy, or liquidation bankruptcy, involves securing or selling assets to pay creditors. Qualifying for this type of bankruptcy involves undergoing a means test. This is the bankruptcy court’s way of determining whether your business has the means to pay back creditors or if liquidation is necessary. Remember, however, that you may be unable to discharge all your business debts under Chapter 7.

What is Chapter 11 bankruptcy?

Chapter 11 bankruptcy, on the other hand, also known as reorganization bankruptcy, helps your business develop a repayment plan without losing your significant assets. It may be the right option for you if your debt is overwhelming, but you still have the means to repay creditors and can eventually bring your business to a survivable state.

Filing for either Chapter 7 or Chapter 11 bankruptcy implements an automatic stay that prevents creditors from pursuing collections from your business. This may give you time to solve your financial woes and allow your business to thrive again.