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Business Bankruptcy

Hire skilled and experienced Bankruptcy representation for your business.

Businesses can declare bankruptcy in one of three ways. They can file for Chapter 7, Chapter 11 or Chapter 13 Bankruptcy. Understanding each and what they mean can help a business determine what type would best fit their particular situation.

For a free bankruptcy review, call (619) 304-9190 or complete the form below.

Understanding Business Bankruptcy

Chapter 7:

Chapter 7 is often the best option for California businesses that are unable to remain in business after the filing. In many cases, sole proprietorships file Chapter 7 Bankruptcy based on their income. However, some corporations, limited liability and partnerships also choose this type of bankruptcy. When filing Chapter 7, a trustee will be appointed. This means the business owner loses control of their company. Any and all assets not considered exempt will be liquidated or sold. A business’s creditors will receive as much repayment as possible. With Chapter 7, creditors are given fewer options when it comes to recompense amounts. Chapter 7 Bankruptcy does not work for businesses in the same way it does for individuals. This is because of the following factors:

  • The ability of creditors to make a move, shirting liability from a business to an individual.
  • Provides an increased need to safeguard the interest of the creditors when the business closes its doors. 
  • The “separate entity” that is afforded organizations. 

With Chapter 7 Bankruptcy, there is no debt discharge. While that might be disconcerting, it is not necessarily bad, because creditors are unable to obtain any additional debt repayment from a business that is no longer operational. Keep in mind, though, that since the debt is not discharged, creditors can pursue legal action towards an individual not the business. Chapter 7 Bankruptcy is the most similar to filing individual bankruptcy.

Chapter 11:

Chapter 11 Bankruptcy is also called business reorganization. It requires the business to come up with a repayment plan to repay what they owe creditors. If the predetermined plan is deemed equitable and fair by a judge, it will be approved. This type of bankruptcy is the most complex of the bankruptcy options. Businesses that choose to file Chapter 11 Bankruptcy need the expertise of a highly skilled bankruptcy attorney with experience when filing this particular type of bankruptcy. 

While in the process or under Chapter 11, a business can continue to operate, making purchases and sales as per usual. There is no buyout of the company or liquidation of assets. However, if a company is unable to hold up their end of the deal in terms of repayment, perhaps because they are not making enough profit, the Chapter 11 will most likely be converted into a Chapter 7. This means the business must close.

Chapter 13:

The third and final option for businesses who need to file bankruptcy is Chapter 13 Bankruptcy. This is an option for getting out of debt yet maintaining the business. It is ideal for sole proprietorships and small businesses where the business owner can file the bankruptcy. This too is a type of business reorganization; however, it is considered an individual bankruptcy plan not a business bankruptcy filing. The business owner will formulate a repayment plan to pay back a portion of the debt and file it with the court. 

The advantage of Chapter 13 Bankruptcy is the fact that businesses can avoid asset liquidation, while continuing to operate their business throughout the process of filing bankruptcy. However, it’s important to note that the sole proprietor’s income and property is considered when formulating and approving a plan. This ensures the creditors have full and equal opportunity to recoup their investment. The repayment plan of Chapter 13 typically spans three and five years. A trustee facilities the payment transactions.

Your Next Step

If your business is in trouble, due to the shutdowns or otherwise, we are here to help you determine the best way to meet the problem head on. Call us today at (619) 304-9190.

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