Filing for a business bankruptcy is tough. The business’s faces a hostile and uncertain situation as angry creditors, worried owners, doubting customers, and a damaged brand combine to make life tough. However, if a legal adviser recommends a business bankruptcy filing, then the company is left with no other choice. The company can try and save itself by filing for bankruptcy protection under Chapter 11, which allows the business to reorganize itself and pay off its debts over a period of time.
Businesses that have profitable products, but are in a mess for some other reasons (financial mismanagement, too many diversifications, investment in bad assets, etc.), can opt for Chapter 11 business bankruptcy filing. The business has to file their financial statements and a reorganization plan. The reorganization plan is voted on and approved/disapproved by creditors. If it is approved, then the business must discharge its debts as per the plan while carrying on with its business. When the plan is fully executed, the business becomes debt-free.
On the other extreme, if a business feels that it can no longer continue because a host of factors have completely eroded its profitability and debt-repayment capacity, then it may opt for Chapter 7 business bankruptcy filing. Chapter 7 bankruptcy is business liquidation. A case trustee sells the business’s assets and uses the sales proceeds to pay the creditors. Once the creditors are paid off, the business ceases to exist, unless it is a sole proprietorship. A sole proprietor can opt for Chapter 13 business bankruptcy filing, which works the same way as Chapter 11 does.
Creditors are ranked by the case trustee who is appointed by the bankruptcy court. Secured creditors are given preference over unsecured creditors. Chapter 7 bankruptcy works just like how the “cold turkey” method works for smokers who want to give up smoking. The end is fast and easy. Chapter 11 requires a lot of patience and dedication because the business must 100% stick to the reorganization plan. Paying off the debts under Chapter 11 takes very long as well.
Though a business bankruptcy filing should be considered as the last resort, the business must not decide on it until it consults a legal professional. A legal professional can even help stave off a business bankruptcy filing by providing the business with other viable options. How do lawyers help in a business bankruptcy filing?
Lawyers help out in the following ways:
1. They help business owners assemble the right documents needed to file a business bankruptcy petition.
2. They review all the documents and present all options to the business owner. Lawyers are experts and if they find the documents in perfect shape, then the chances of the bankruptcy succeeding increase.
3. Working with a legal expert lifts the stress off the business owners, who can either focus on his business (Chapter 11 bankruptcy), or make plans for the future (Chapter 7 bankruptcy).
4. Lawyers are up-to-speed with the latest bankruptcy-related judgments and with the law. They can precisely advise on what works and what doesn’t. 5. Working with a lawyer sends a message to the creditors to stop their harassment (collection calls).
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