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Bankruptcy for Your Business May not be the Help That You Think it Is


If you have a business and it’s in debt, you may be considering bankruptcy. After all, people file for bankruptcy all the time, and they generally walk away from the bankruptcy owing little or nothing. Could this be the solution to your business’ debt and financial problems?

Chapter 11 Bankruptcy

The answer is not as clear as you may think.

Yes, you can file a Chapter 11 bankruptcy, which does allow a reorganization of your business. However, Chapter 11 can be long, time consuming, and very expensive. Additionally, while in some cases you can continue to run your business, many of your business decisions will have to be approved by the bankruptcy court.

Because Chapter 11 is a restructuring, you can expect a major overhaul of your business operations, including possibly, a sale of part of your business to fund the reorganization.

Chapter 7 and Bankruptcy

What about a Chapter 7 bankruptcy? While businesses can legally file a Chapter 7 bankruptcy, the problem is that in Chapter 7 bankruptcy, your business does not get a discharge of its debts, the way that a human person does when filing. That means that after the bankruptcy, you may still have creditors.

One time when a Chapter 7 may help, is if you do not want to continue with the business, and just want to shut it down, owing as little money as possible. In a Chapter 7 bankruptcy a bankruptcy trustee will liquidate and sell all of your business assets and sell them, giving proceeds to your creditors.

You could, of course, do this yourself, without a bankruptcy. But a bankruptcy trustee may have a better ability to do this  (and more motivation, since the Trustee gets paid more the more your property yields when its liquidated) and if you are looking to just walk away from your business as quickly as possible, the Chapter 7 keeps you from having to spend months selling everything you have, and then selling to creditors.

Loss of Control

If you file a Chapter 7 bankruptcy, the trustee could immediately take control of your business.

If you are looking to just walk away from your business, this could be good—you don’t have to worry about winding down operations; you are immediately free of obligation for the business. But conversely, if that’s not the case, and you do want to continue to run the business, you could lose it entirely if the trustee takes over.

Other Alternatives

There are alternatives to bankruptcy, including just negotiating with creditors, or liquidating some, but not all, of your assets. Assignments for the benefits of creditors also can help you give property to creditors to pay debt, without giving up the entirety of your business.

Let us help your business with debtor-creditors problems. Call the West Palm Beach business lawyers at Pike & Lustig today for help.



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