Depending on the circumstances, businesses have three potential bankruptcy options:
Chapter 7 – for businesses that do not have the means to continue operating and must close their doors. In this instance there are assets (usually equipment and inventory) for the court to disburse to creditors. Business owners may also need to file a personal bankruptcy if they have given a personal guarantee for business debt, or were operating as a sole proprietorship.
Chapter 13 – this is an option for business owners looking to restructure and are operating as a sole proprietorship. This is not an option for partnerships, limited liability companies, or corporations. There are debt limits which may force a sole proprietorship to file under Chapter 11.
Chapter 11 – Chapter 11 is the only bankruptcy option, for businesses seeking to restructure and continue in operation if it is owned by a partnership, limited liability company, or corporation.
Under Chapter 11, a debtor can restructure its finances through a plan of reorganization. This allows the business to reduce obligations and modify payment terms. The goal of a Chapter 11 bankruptcy is to become profitable, and continue operation. Businesses often use this an opportunity to downsize (although not required), and get relief from burdensome contracts with others.
For the most part, small businesses and major corporations have to follow the same rules and meet the same requirements to reorganize under Chapter 11. There are, however, some special provisions for small business debtors that can help them fast track through the Chapter 11 process and reduce legal and other restructuring expenses.
We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code.
POST OFFICE BOX 3129
TUPELO, MS 38803-3129
Middleton & Tinsley Law Firm, PLLC
(662) 205-4749 Local