There are two types of bankruptcy proceedings that are available to businesses:

Chapter 7 is available for corporations and partnerships. In this proceeding, a trustee is assigned to the case after the bankruptcy is filed. Secured debtors are entitled to recover the property that secures their debt. The trustee then works with the business owner in liquidating the remaining portion of the business' assets such as inventory, furniture and vehicles. The funds collected by the trustee are then distributed to the business' creditors and the business ceases operation.

Chapter 11 is a reorganization proceeding. A business in financial trouble may elect to file a Chapter 11 petition to try to reorganize outstanding debts and continue to operate the business. There is an automatic stay, just like any other bankruptcy proceeding. Unlike in a Chapter 7 proceeding, a business that files a Chapter 11 proceeding will become a debtor-in-possession and there will initially be no bankruptcy trustee appointed. The debtor-in-possession is given an opportunity to prepare a plan of reorganization that must be approved by a majority of the creditors. If a plan is approved by the creditors and is confirmed by the court, it binds both the debtor and the creditors to its terms of repayment. Under the plan, the debtor-in-possession can reduce debts by repaying a portion of its obligations and discharging others. It can also terminate burdensome contracts and leases, recover assets, and rescale operations to get back to profitability. Under this Chapter, a business normally goes through a consolidation period and comes away with a reduced debt load and a reorganized business. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization. Generally, the plan of reorganization must provide for paying creditors at least as much as they would have been entitled to be paid in a Chapter 7 liquidation proceeding.

Please note that in order to file a Chapter 13 you must actually intend, and have the ability, to participate in a Chapter 13 plan. The filing of a bankruptcy petition merely to stop foreclosure is considered by the U.S. Government as an abuse of the Bankruptcy Code and is punishable by a fine and/or jail.

That depends. Every situation is different. If you have considerable assets or inventory; or if you have secured debt, it is probably better to file Bankruptcy; otherwise you could simply close your doors and file your Articles of Dissolution with the Secretary of State. Since every situation is different, it is best for you to consult with an attorney. Feel free to contact us for your free consultation to discuss your options.

If the inventory is secured by a loan, then the secured party (bank) is entitled to collect the property. However, if there are no secured creditors, then the bankruptcy trustee may decide to liquidate the assets in order to satisfy the business' unsecured creditors. If there are insufficient assets, then many times the trustee may "abandon" the property; if this happens, then the business owner may take possession and control of the business assets.

Chapter 11 Bankruptcy is reserved for businesses that can remain a viable entity if it were able to reorganize its debts and obligations. Chapter 11 Bankruptcies are extremely complicated and require a team of dedicated officer/managers and experienced attorneys. The business will likely sell assets that are not needed or will close unprofitable divisions. While working with the business’ creditors, the bankruptcy attorneys will develop a plan of reorganization and contracts, leases and debts will be restructured. For more information, or to discover if your business is a candidate for Chapter 11 Bankruptcy.

As a guarantor, you become personally responsible for all debts of the corporation in the event that the corporation defaults. In the case of a business bankruptcy, once all business assets are liquidated, and distributions are made to creditors; you will become responsible for the remaining balance of the business debt that you personally guaranteed. Many times, small business owners are forced to file personal bankruptcy after their business closes.

If your business files a Chapter 7 Bankruptcy, it ceases doing business before it files. In a Chapter 11 bankruptcy, the owners and managers of the business will to continue to operate the business. They become a "debtor in possession" or "DIP". The DIP runs the day-to-day operations of the business with the protection of the Bankruptcy Court. With the assistance of their attorney, the business will prepare a plan or reorganization that outlines how debts and obligations are to be restructured to allow for the business to continue to operate and return to profitability.

In order to emerge from a successful Chapter 11 Bankruptcy, the business must prepare a Chapter 11 bankruptcy plan. If it is impossible for the business to restructure to a point that the business can become profitable, then the bankruptcy can be converted to a Chapter 7 and the business assets will be liquidated. In most cases, a conversion to a Chapter 7 is worse for the creditors; therefore, they will usually do their best to ensure that the business continues operations.