Filing For Chapter 11 Bankruptcy vs Chapter 7 Bankruptcy for Your Business

In difficult times a business owner will undoubtedly consider filing for bankruptcy. For the unfortunate few, the decision is already made – but then the next question is what type of bankruptcy should they file for? The two most common types of bankruptcy, and there are plenty, are Chapter 7 and Chapter 11 bankruptcy. The two are very different, and knowing where you realistically see the future of your business matters what you choose.

We hear a lot about Chapter 11 bankruptcy in the news, but many people don’t fully understand what it actually entails. Filing for Chapter 11 bankruptcy essentially tells your creditors that you will reorganize and restructure your company as well as consolidate its debts so it can be profitable again. That means you can continue running your business under Chapter 11 bankruptcy. Under Chapter 11 protection, a trustee will oversee your assets during this restructuring period. Once you get your business back on track, you can pay back your debts through future revenues.

For some businesses, they have gone beyond what Chapter 11 can do for them, either because the company is too far in debt, or because under Chapter 11 protection it failed to return to solvency. At this point a business owner should consider filing for Chapter 7 bankruptcy. This is also known as liquidation bankruptcy, and companies under Chapter 7 must sell off all nonexempt assets to pay their creditors. A trustee makes sure that all assets are sold and creditors are paid off in order of priority.

So the question of whether you should file for Chapter 11 or Chapter 7 bankruptcy is really a question of whether or not you can possibly reorganize your company and restructure your debt, or if it’s too late and you need to liquidate your company’s assets.