Business Bankruptcy
What’s the Difference Between Chapters 7 and 11 for Small Business Bankruptcy?
If your small business has to declare small business bankruptcy you should be aware of the two most common options that you can use for business bankruptcy. These are Chapters 7 and 11. These options are ones that are very different and work with different business needs. Here is a look at what differences are used between these options.
It helps to first see the basic definitions of these two options. Chapter 7 bankruptcy is where a business will liquidate or sell off all of its assets as a means of paying off all of its debts. Chapter 11 bankruptcy for business works in that a repayment plan is organized to help with paying off debts. In short in a Chapter 7 option the business will sell everything while in Chapter 11 the business will be able to keep some assets.
Next there is the future of a business. A business that declares Chapter 7 will have to close down. This comes from how the options that a business has for financially saving itself have run out and the only thing a business can do to pay off its debts is to sell off all of the things that it has. For Chapter 11 a business will still be able to operate but it will have to sell off some assets in order to cover its new repayment plan. If the business does not pay off all of its debts in Chapter 11 it will have to move into a Chapter 7 business bankruptcy plan.
Another thing deals with the eligibility to get into a business bankruptcy option. If your business is going into a Chapter 11 program you will be able to get this option for your business only if the creditors you owe money to vote to approve the business reorganization and repayment plan that is going to be used. If a Chapter 7 declaration is used then the creditors will definitely accept it. After all, various options can work in a Chapter 11 program while in Chapter 7 the only way out is through selling off all assets.
Chapter 7 and 11 business bankruptcy options are important things for any small business to deal with when it comes to financial hardships. The differences between these two small business bankruptcy options are important to see though. If your business has a possible future Chapter 11 can work but there is no guarantee that a plan for it will work. In Chapter 7 everything is sold off and your business will close down.
