Business Bankruptcy Overview

If a company's circumstances dire, then that company would file for bankruptcy protection. There are several options, from a Chapter 7 liquidation to a Chapter 11 or Chapter 13 reorganization.

In a Chapter 7 filing, the company ceases its operations and goes out of business. The bankruptcy court will appoint a trustee for the company who will liquidate its assets. Those funds are used to pay off the company's debts, including debts owed to creditors and investors.

Under a Chapter 11 bankruptcy filing, a reorganization will allow a company to continue to do business and its stocks and bonds can continue to be trade on the securities markets. The investors are paid in a specific order as determined by federal bankruptcy laws. Those who take the least risk are paid first. A secured creditor takes less risk and is paid first. A secured creditor has its credit terms backed by collateral, such as assets in the company or a mortgage.

For a Chapter 13 bankruptcy filing, a debt-laden sole proprietorship can submit a plan to the courts to pay back its debts over a few years. The bankruptcy court will determine who gets paid what and under what terms. Unsecured debts are discharged at the end of the plan term.

Contact us at The Burns Law Firm, LLC, in order to determine the best choice for you business.