When Businesses File Bankruptcy

April 21, 2012 by  Filed under: Bankruptcy 

The economy hasn’t just been tough on consumers, but businesses are also struggling more than ever before to maintain profitability and keep their doors open. With so many high demand companies taking the plunge into bankruptcy, consumers are wondering what exactly this means for the fate of a business.

Business Bankruptcy Basics

As with personal bankruptcy, businesses have two options to resolve their debts in bankruptcy. A Chapter 11 filing allows for debts to be reorganized and repaid through a consolidated payment plan, similar to that of a Chapter 13. A business Chapter 7 is a type of elimination bankruptcy in which assets are liquidated to satisfy debts.

Chapter 11 cases are often the first line of financial defense for businesses that wish to remain in operation. By keeping the company in operation, businesses hope to be able to negotiate a debt resolution plan that satisfies creditors. In some cases, a business may liquidate some assets, sell off ownership shares, or even auction off the entire company in a sale in order to repay creditors. Generally, a Chapter 11 case keeps the majority of the business interests in tact while resolving debts. If the case is successful, the company will be able to resolve its debt liabilities and regain profitability.

A business Chapter 7 case is sought for companies that have no chance of regaining future profitability or do not wish to remain in operation. The main source of debt satisfaction in these cases is asset liquidation, in which all remaining assets are sold to pay debts to creditors. The company owners will relinquish their share in the company and ownership rights are terminated. When a company advertises they are “going out of business”, they may be pursuing a business Chapter 7.

From Reorganization To Liquidation

Although many big name companies and major industry players have made headlines in recent years for their bankruptcy filings, it doesn’t necessary mean bad things. In fact, many of the high profile Chapter 11 cases have been involved in successful exits from bankruptcy, even leading to better business operations and improved consumer services.

However, not all who enter Chapter 11 will prevail and some have ended up converting into business Chapter 7 cases instead. This is typically seen when a company was unable to negotiate a deal in Chapter 11 or unable to find additional sources of income or revenue as part of their filing. A lack of investors and limited opportunities for the partial sale of ownership or assets has lead many companies from reorganization into liquidation.

The Lee Law Firm is a Fort Worth,Texas bankruptcy firm that aims to provide local residents with high quality legal representation at affordable rates. Their attorneys are professional and compassionate, giving clients the personalized attention they deserve. When filing bankruptcy, the Lee Law Firm is the right choice to help in the face of financial hardship.

Article Source:

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.

Prev Post:
Next Post: