In today’s challenging economy, many businesses—large and small—find themselves struggling to stay afloat. Costs are rising, consumer spending is down, shifts in global trade policy is affecting supply chains and access to credit can be limited. It is of little wonder that business bankruptcy rates are up.
As these pressures mount, many business owners are faced with difficult decisions about how to protect their operations, assets and long-term viability. In some cases, filing for business bankruptcy may be the best available path toward financial relief and a fresh start.
Business bankruptcy is not a sign of failure—it’s a legal tool designed to help companies reorganize or wind down in a structured, lawful manner. There are several types of bankruptcy available to businesses, and each serves a different purpose depending on a particular company’s financial situation and goals.
Chapter 11 versus Chapter 7
Chapter 11 is the most commonly used bankruptcy option for businesses that wish to continue operating. This type of filing allows a business to restructure its debts while maintaining day-to-day operations under the supervision of the bankruptcy court. It provides breathing room by halting collection efforts and giving the company time to propose a repayment plan. Many companies use Chapter 11 to renegotiate leases, contracts or payment terms, ultimately emerging as stronger and more sustainable operations.
Smaller businesses may benefit from Subchapter V of Chapter 11, a streamlined process that reduces costs and simplifies requirements. This option is often ideal for owners who want to maintain control of their business while addressing manageable levels of debt.
On the other hand, Chapter 7 bankruptcy may be appropriate when a business cannot reasonably continue. In Chapter 7, a trustee is appointed to liquidate the company’s assets and distribute the proceeds to creditors. While this means the business will close, it provides an orderly process for settling debts and can shield owners from continued legal action.
Before pursuing bankruptcy, it’s important to carefully evaluate your business’s financial picture. If you’re a business owner, are your company’s revenues declining permanently, or is this a temporary setback? Have you explored all available financing, cost-cutting or renegotiation options? Sometimes, bankruptcy is not the only answer—but in many cases, it can prevent further losses and offer a path forward, either through reorganization or responsible closure.