Before Seeking Bankruptcy Protection - Consider Different Bankruptcy Options

Before, the topic of bankruptcy was a touchy one. However, as time flies, people became more aware of what bankruptcy means, especially Chapter 11, which pertains to reorganization of the business. When a business finds it difficult to meet its financial obligations, a bankruptcy is almost certainly to follow. The required interest for the loans that the business needs to pay usually eats up the company’s revenues, thereby leaving the company financially distressed.

While there may be various business bankruptcy options available for a company, it is still important for a business to weigh these options first, before deciding on one. There is also a need for a bankruptcy attorney to be appointed by the company, one who is aware of the bankrupt laws that can be applied. In fact, bankruptcy lawyers can present the company with other feasible options, and not just bankruptcy.

The following are the different business bankruptcy options that are available for financially constrained businesses:

1. Chapter 7 - Liquidation. If the business does not see any hope in the future because of an unprofitable product line or lack of assets or impossible debt, then it must file for protection under Chapter 7. Chapter 7 is ideal for sole proprietors and small businesses, where the name of the business is directly connected to the name of the owner or owners. In this type of bankruptcy, business assets are sold and the proceeds from the sale are used to compensate creditors. Once the proceedings are over, the company would not exist anymore.

2. Chapter 11 - Reorganization. This is opted for by companies with potentials but are hounded by debts. This allows a company to reorganize the structure and the manner by which it performs operations, hence giving more time to the company to pay up its debt. The company needs to submit a reorganization plan together with its petition for bankruptcy, which must be approved by its creditors. If creditors approve the reorganization plan, then the company must comply with the terms in the plan. When the creditors are paid and the plan has been executed fully, then the debts of the company are eliminated.

3. Chapter 13 - Wage Earner Plan. It is referred to as wage earner's bankruptcy, and a sole proprietor who has mixed up his personal assets in his business, so he can gradually repay his debts from his wages. This Chapter helps protect the personal assets of sole proprietors.

4. Chapter12 - Family Fishermen Bankruptcy. Farmers and fishermen can seek protection from their creditors under Chapter 12 bankruptcy.

These are the various business bankruptcy alternatives that you can choose from. Businesses have to consider whether it would need liquidation or mere business debt consolidation, take a look at secured debts, tally all their resources, and take time to ponder upon whether or not to appoint a business bankruptcy lawyer to handle bankruptcy filing.

Filing For Chapter 11 Business Bankruptcy - Is It Your Best Choice?

If you own an incorporated business and you need to ask for business bankruptcy protection, two options that you may be taking into consideration are Chapter 11 and Chapter 7 bankruptcy. In Chapter 7 filing, you will have the federal court that presides over your petitioning appoint a trustee who for all intents and purposes becomes the temporary owner of your assets and your business. With this type of business bankruptcy, you would not have a hand in the business operation because it will be the trustee who would be choosing who to hire, who to fire, how to utilize the business assets to pay off creditors, how to structure the business for the benefit of every shareholder, and many more. Depending on your circumstances, filing for a Chapter 7 business bankruptcy may be your most feasible option. Chapter 7 exists for your protection and that of your creditors. However, some businesses facing bankruptcy may find it more attractive to file for Chapter 11 protection.

By filing a Chapter 11 business bankruptcy, you get to maintain control and command over business assets, as well as the business operations. The stipulation from the court is that you must appoint your management team to become a “debtor-in-possession”, or DIP. The DIP acts like an agent, one who works out a deal with your business creditors, with regards to payment terms that are agreeable to both parties. These payment plans may mean periodic partial payments until a debt is paid off to some creditors, while other creditors may agree to take a lesser amount than what is owed to them in exchange for ceasing all legal collection attempts against you. The DIP acts in the capacity of a court appointed trustee, except that it comes from within your own organization and no-one is appointed by the court. The DIP is going to have the business' best interests in mind, whereas a court appointed trustee cares more about paying off creditors.

Whereas Chapter 7 business bankruptcy filing is about liquidation, Chapter 11 filing is “only” about restructuring. With Chapter 11, business operations are restructured to find the best solution that will allow you to pay debts in a timely manner. This may necessitate you to lay off workers, either permanently or temporarily, and may even cause you to excise one entire department. The DIP will be the one who will supervise the whole process and determine what caused the inefficiencies among the company, which eventually resulted to the inability to pay up creditors in a timely manner, and will make sure that those responsible for such inefficiencies are eliminated. The federal court presiding over your Chapter 11 business bankruptcy petition will necessitate you and your creditors to make periodic progress reports regarding the whole process.

When a number of your creditors, or perhaps all of them, are not pleased with the performance of the DIP, they could file a petition in court to have the DIP replaced with its own appointed agent. This is not at all to your business' advantage. Because of this, it is just proper for you to seek the services of an attorney who has the expertise in business bankruptcy law if you are considering filing for Chapter 11. His title will be “Debt Relief Agent”. Your lawyer can give the proper advice to your DIP, and will be able to negotiate with creditors. That way, filing for Chapter 11 business bankruptcy would not result to your business’ destruction.

If you see that business bankruptcy protection is already required by your business, it is best that you seek out the help of an experienced bankruptcy lawyer who could give you the right advice with regards to the filing option that would be appropriate for your business. Likewise, you might also find an alternate solution to filing bankruptcy. Business bankruptcy filing really should be a last resort to salvaging your business.