When a company sinks so far in to debt that they decide its time to file for bankruptcy, what kind of options are available to them?
There are a few choices that a business can make when they enter bankruptcy, and one of the most common types of business bankruptcy is Chapter 11. A Chapter 11 filing opens up a lot of opportunities for a struggling company. The company, temporarily freed from the harassment of creitors, will get some time to figure things out while the Chapter 11 filing is processed. The business can also use this time to reorganize themselves and prepare for either a possible exit strategy or a new way of doing things so the company doesn’t fall on such hard times again.
In addition, a Chapter 11 filing can help facilitate the sale of the company to new ownership or investors.
Chapter 13 is another choice business owners have, but this is usually only applicable to a business that has a single owner. Chapter 13 is generally a personal bankruptcy filing, so usually the company has to be a sole proprietorship. But, this can prove beneficial for the individual owner. If he or she has poured assets into his or her business, then Chapter 13 could protect those assets from the bankruptcy process.
Another option a business owner has is Chapter 7. The crucial thing with this filing is that there is a good chance that your company will cease to exist if you file. It’s not a guarantee; but in most Chapter 7 cases, the liquidation process of this filing sees the assets of the business go to new owners. It is possible, though, that many or all of your assets are passed over, thus giving you a chance to buy them back.
Source: FOX Business, “A Bankruptcy Guide for Business Owners,” Donna Fuscaldo, Aug. 6, 2013