Business Bankruptcies: Different Types To Know About
Mostly, small-scale businesses fail to survive the cutthroat competition in the market. As a result, they often face a situation where they might have to declare business bankruptcy. From 2005 to 2017, around 1/5th of new businesses survived only a year or slightly more than that. About half of these brands continued until five years, while the rest survived up to ten years.
What happened to the rest? Well, some of them went to declare business bankruptcy. What shall you do if your business suffers from such a situation? The first thing you need to do right now is hiring the Orlando business bankruptcy lawyer Walter Benenati. Before even discussing these plans with any partners or other employees, you need to hire the best attorney in the market.
About Business Bankruptcy & Types
Business bankruptcy refers to many businesses’ procedures in federal court. Here the companies eliminate or repay the debts with the protection and guidance of the bankruptcy court. Did you know that business bankruptcies are usually distinguished as reorganizations or liquidations? The distinction will merely depend on the bankruptcy mode you choose for your company.
How many types of bankruptcy are there? Mainly, business companies can go through three types of bankruptcies depending on their structure.
The sole proprietorships are the owner’s legal extensions. In this case, the owner will be held responsible for all the liabilities and assets of the firm. It is prevalent in the case of the sole proprietorship, and the company can do so by filing for Chapter 13. The entire process is also called a reorganization bankruptcy.
Legal business entities like partnerships and corporations are not the sole responsibility of the owners. In this regard, they are different from their owners and hence can file for bankruptcy protection under Chapter 11 or 7. According to the U.S. Bankruptcy Code, you can find various types of bankruptcies that are named the “chapters.”
Understanding Chapter 13
“Adjustment of Debts for Individuals with Regular Income” or Chapter 13 bankruptcy is the typical one that is meant for individual companies. However, here the sole proprietorships are not clearly indistinguishable from their owners.
As a result, it is ideal for businesses that seek reorganization as their primary goal. However, they aren’t keen on liquidation. Therefore, the owner needs to file the repayment plan with the corresponding bankruptcy court to provide all the required details about how he plans to repay the debts. So, this Chapter 13 allows the owner to remain active in the business. By doing so, he can repay the debts as per the timeline without losing the entire company.
Understanding Chapter 7
Chapter 7 business bankruptcy is ideal for companies with no practical future left. Generally, the investors refer to this bankruptcy as liquidation. However, when the trade debts become incredibly overwhelming and the restructuring isn’t at all a feasible plan, the company resorts to Chapter 7.
It is also ideal for businesses that lack any substantial assets. So, if the request is approved for Chapter 7, there will be the dissolution of the trade.
The Final One
Understanding the clear differentiation between Chapters 7 and 13 is essential for every business person. The last one on this list is the business reorganization, Chapter 11. It gives you a real chance to shift things around and establish them again in the market. It is generally ideal for the sole proprietorships whose income statistics are too high to opt for the Chapter 13 bankruptcy.
So, which one do you plan for your company? No matter what condition you are in right now, hiring an experienced and knowledgeable business bankruptcy attorney for your company is mandatory. Take your time, research properly, and select the best person ideal for saving your brand.
This article has been published in accordance with Socialnomics’ disclosure policy.
