Orantes Law Firm
Businesses have more than one option if they choose bankruptcy
Businesses are always going to be under financial pressure, and in many cases, this can result in a company going under. Many small businesses fail because of a lack of finances. The owner may pour in massive amounts of time and money into the company to get it off the ground — but ultimately, that does not mean the company will succeed.
That is not meant to be as depressing as it sounds; instead, it is just something that business owners need to take note of. Financial instability is not only possible — in many cases, it is to be expected. When it rears its ugly head, you need to know your options.
Many business owners may think that, if bankruptcy is what they choose, that their only option is Chapter 11. While it is true that Chapter 11 bankruptcy is the most common form of business bankruptcy, a company can file for Chapter 7 or Chapter 13 as well.
A business that files for Chapter 7 has to be a sole proprietor, since Chapter 7 is an individual bankruptcy option. But since a sole proprietorship is, essentially, one person, Chapter 7 can be used. However, the owner needs to be prepared for the loss of his or her company if they choose Chapter 7.
Chapter 13 is very similar to Chapter 11, in that it is a reorganization plan that allows a company to continue operating while reducing their regular debt payments by displacing it over a longer period of time. Again, like Chapter 7, it necessitates a sole proprietorship (barring extreme circumstances). Chapter 11 and Chapter 13 filings will assign a trustee to your case, who will make sure your company stays on track with payments.
Source: AGBeat, “Declaring business bankruptcy: basic overview,” Destiny Bennett, March 5, 2013