Business Bankruptcy

For companies facing the debate of undergoing a business bankruptcy, the utmost expertise and guidance should be sought in this delicate and complex matter.  For starters, companies oftentimes prove unsure whether their current financial situation warrants enacting business bankruptcy strategies, let alone which type of bankruptcy filing would be most beneficial to the company and its employees.  A business bankruptcy attorney can help guide executives and business owners through the complex maze of law known as United States Bankruptcy Code.

For starters, the United States Bankruptcy Laws fall under Title 11 of the United States Code, and the various sub-types of bankruptcy proceedings are further divided according to chapters within Title 11.  For a business or corporation, the applicable forms of business bankruptcy chapters under Title 11 of the United States Code are Chapter 7 bankruptcy, Chapter 11 bankruptcy reorganization, and potentially, Chapter 12 bankruptcy filings exclusively reserved for family farmers and fishermen.  This article will explore the intricate nature of Chapter 7 bankruptcy and Chapter 11 bankruptcy. 

Bankruptcy laws, as mandated by article 1, section 8, clause 4 of the United States Constitution, are subject to the codes and statutes set forth by the federal government, and all bankruptcy filings are made within the United States Bankruptcy Courts, which are a subset of the United States District Courts.  Additionally, state laws play an integral part in almost all bankruptcy filings, as the laws of the state where the bankruptcy claims are filed will determine the property rights of businesses following the business bankruptcy plans.  Seeking counsel of a bankruptcy attorney in your business’ state is the only appropriate means of assessing any and all implications of a filing a business bankruptcy.

 

Chapter 7 Business Bankruptcy

Chapter 7 bankruptcy is the most common form of bankruptcy filed by business in the United States.  According to the United States District Courts, there were 16,914 Chapter 7 filings by business in the one-year period prior to September 2007, which accounts for almost three times more filings by businesses than those opting to undergo Chapter 11 bankruptcy proceedings.  During a Chapter 7 bankruptcy, businesses will have concluded, either on their own accord or through litigation with their creditors, that the debts of the company outweigh the practical nature of continuing business operations.  Sometimes a company will be forced by its creditors to file for Chapter 7 bankruptcy due to the expansive nature and length of delinquency on the debts owed by a near bankrupt company.  As soon as a business files for Chapter 7 bankruptcy, the federal district bankruptcy court will appoint a bankruptcy to oversee the bankruptcy proceedings, which will entail selling, or liquidating, all the remaining assets of a company to satisfy the demands of creditors.  Hence, Chapter 7 Business Bankruptcy filings are typically referred to as Chapter 7 liquidation.

Assets that are applicable to be liquidated during a Chapter 7 business bankruptcy include virtually anything, including employees and branches of the company itself to competitors or other bidders.  The sole goal of the court-appointed trustee is to manage the sale of a company’s assets to satisfy all the legally enforceable debt obligations owed to a business’ creditors.  Creditors, which entered into fully secured agreements with a business, have the legal right to make claims on all forms of collateral promised.  Additionally, and much unlike the conditions in Chapter 7 bankruptcy proceedings for individuals, businesses, regardless of whether the company is a corporation, limited liability, or partnership, cannot discharge any debts through Chapter 7 business bankruptcy.  Following the dispersal of all the revenues from the liquidation of a company’s assets, the bankruptcy case is considered closed and all outstanding debts will be ignored and unpaid until they expire through applicable statutes of limitations according to state and federal law.

 

Chapter 11 Business Bankruptcy

The second most common form of business bankruptcy filed in the United States is found under Title 11, Chapter 11 of the United States Bankruptcy Code, or what is more commonly known as Chapter 11 reorganization.  According to the United States District Bankruptcy Courts, there were 5,317 Chapter 11 Business Bankruptcy filings in the one-year period prior to September 2007.  Chapter 11 bankruptcy allows a sole proprietorship, limited liability corporation, partnership, or corporation to undergo reorganization in the face of mounting debt and contract obligations.  When filing for Chapter 11 bankruptcy reorganization in the federal bankruptcy courts, businesses must prove several items before the courts, which is best done under the counsel and direction of a bankruptcy attorney.  Items included in the typical claim for Chapter 11 reorganization protection include:       

  • Complete count of all debts, secured and unsecured
  • Proposed plan of reorganization
  • Fiduciary benefits of Chapter 11 reorganization over Chapter 7 liquidation for creditors
  • Voted approval of Chapter 11 reorganizational strategy by creditors and confirmed by courts
  • Invocation of automatic stay forcing creditors to cease collections actions for time being
  • Emergence of company from Chapter 11 reorganization at hands of creditors or original company owners

When making a proposal for reorganization, companies must consult a bankruptcy attorney skilled in navigating the complex process of litigating within the Federal Bankruptcy Court System.  Additionally, communication and negotiations with creditors will inevitably occur, which companies are best secured when entering into these discussions with their creditors by having a bankruptcy attorney at their side.  In the event a Chapter 11 proposal is rejected by a company’s creditors or by the court itself, companies may be forced to undergo at Chapter 7 liquidation at the hands of a court-appointed trustee, or in rare cases, companies will return to their previous operating state prior to Chapter 11 filings and must face their creditors and contractual obligations on a case by case basis. 

Do your company’s creditors leave you with little or no decision in regards to filing business bankruptcy?  Contact a bankruptcy attorney right away to evaluate your company’s financial future and potential relief through business bankruptcy proceedings today.

 

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