If your company is struggling to keep up with its mounting debts, it may be time to consider declaring bankruptcy. Increasing numbers of businesses are filing for bankruptcy as a result of the current depressed economic climate. Prior to filing for bankruptcy, however, it is crucial to understand that the type of business bankruptcy you select can have a significant impact on the ultimate outcome. Learning more about Chapter 11 and Chapter 7 bankruptcy filings can help you determine which option is best for your company's financial difficulties.
Filing Chapter 7 Bankruptcy
Chapter 7 is also known as liquidation bankruptcy. Simply put, this type of corporate bankruptcy spells the end of your company. Your business will be dissolved, and its assets will be liquidated to satisfy its debts. Filing for Chapter 7 bankruptcy, a viable option for eliminating debts, is typically designated for businesses in dire financial straits or small, sole proprietorships.
Filing Chapter 11 Bankruptcy
Chapter 11 bankruptcy is also known as reorganization bankruptcy. Chapter 11 does not dissolve the company, unlike Chapter 7. Instead, a Chapter 11 petition focuses on addressing the organizational issues that led to the company's insolvency and compensating its creditors. To return a company to profitability, typical changes include refining organization and reorganizing management, as well as the sale of certain assets to satisfy creditors. Chapter 11 bankruptcy is typically the option chosen by large corporations.
If your company is experiencing financial difficulties, bankruptcy of one type or another may appear to be the only option, but you may want to consider alternatives to bankruptcy such as adjustments and turnarounds. Before filing for corporate bankruptcy, a bankruptcy attorney can help you ensure that you've considered all of your options, so be sure to seek the counsel of a seasoned attorney.
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