Have you ever considered filing for bankruptcy as a means to avoid paying for debt? There are some important aspects to keep in mind before filing for bankruptcy, such as when and which kind of bankruptcy to file for.

What are Chapter 7 and Chapter 11 Bankruptcies?

It’s important to keep in mind that ever state has different and distinct bankruptcy laws. This article covers the difference between filing for Chapter 7 and Chapter 11 bankruptcy.

Chapter 7 bankruptcy is usually filed when a business has no future. Often referred to as “liquidation”, Chapter 7 bankruptcies are designed to completely stop a company of all operations, liquidate the company’s assets, and pay its obligations and debt (SEC.gov). A much more common bankruptcy option is Chapter 11, which allows companies to reorganize and continue business after negotiating a reorganization plan with creditors (AllBusiness.com).

After You File For Bankruptcy

After filing for a Chapter 7 bankruptcy, businesses can achieve an easy and orderly liquidation of the business by selling its assets and pay its creditors. But if your business debt isn’t fully paid off after filing for bankruptcy, the creditor can use any of your personal assets that are connected to the company to pay the remaining debt balance (Nolo.com).

Chapter 11 bankruptcy options are usually best for businesses that are behind in debt payments; it allows creditors to receive partial payments from debtors, while also allowing the company to continue operating (SEC.gov). When you file, committees of creditors and stockholders negotiate a plan with your company to relieve it from repaying part of its debt and get back on its feet.

Sources

SEC.gov: https://www.sec.gov/reportspubs/investor-publications/investorpubsbankrupthtm.html
AllBusiness.com: https://www.allbusiness.com/four-types-of-business-bankruptcy-2975506-1.html
Nolo.com: http://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-llcs-corporations.html