Bankruptcy In A Business- Stall Tactic or Necessity You Decide
When talking about bankruptcy in a business it is important to understand that many businesses use filing bankruptcy as a stall tactics against their creditors. Without such a system the businesses would not be able to survive and filing Bankruptcy Proceedings buys that business a bit more time to stay open and try longer to repay their debts.
Understanding Bankruptcy in Business
Bankruptcy in Business is much different than for an individual.Many businesses use bankruptcy as a means to “buy time” in order to reorganize into a profitable business. This leads to the first question which must be answered – Can the business be saved?
Businesses can potentially qualify to file for bankruptcy under Chapter 7, 11, 12 or 13. The cause of the financial problems of the company will help you decide which bankruptcy Chapter to file under.
Chapter 12 and Chapter 13 are extremely limited for businesses.Chapter 12 is restricted to individuals or in some cases businesses which meet the definition of Family Farmer or Family Fisherman. Chapter 13 is limited to small proprietary business owners. Therefore, most business will be limited to filing under either Chapter 7 or Chapter 11.
Is your business a viable enterprise? Is there a market for your product or service? Can revenues grow enough to support your expense base?Do you just need to “buy some time” or, is it time to liquidate the business.
If you don’t believe the business can be saved, you should file under Chapter 7 Bankruptcy. This is the simplest form of bankruptcy. Chapter 7 is also referred to as a liquidation proceeding. The court appointed trustee will sell all non exempt assets and distribute the cash to the creditors based in order as established by the federal bank codes.This provides an orderly liquidation of assets without any additional expense to the shareholders.
The advantage of Chapter 7 Bankruptcy for the creditors is that they
will be paid to the maximum value of the assets available for sale and in
the legal priority of their claims. The management of the company
could be liable for taxes. The liquidation proceedings guarantee that the
cash raised, after the expenses of the Chapter 7, go to pay taxes
first.
If you believe the business can and should be saved, Chapter 11 Bankruptcy is probably best for your business. This bankruptcy act revolves around the preparation, confirmation, and implementation of a plan.Management continues to run business and tries to become profitable again.All significant business decisions must be approved by the bankruptcy court.Many large companies including K-Mart, WorldCom, and Enron used Chapter 11 to reorganize. Some have been successful, some have not.
After filing a Chapter petition there is an immediate and automatic stay which stops creditors from taking any further action to try to collect their debts.
One of the differences between personal bankruptcy and filing bankruptcy for a business is that the debts are not discharged. In some cases, a sole proprietor can be entitled to having their debt discharged. Bankruptcy in business is much more complicated than most individual bankruptcies. It is important to get sound advice form professionals.