September 10, 2020

What Are the Types of Bankruptcy for Businesses?

Business bankruptcy might bring to mind bleak images of financial ruin that involve the loss of all valuable property. In reality, bankruptcy takes many forms—and in several situations, it’s a viable solution to the burden of debt that overshadows many business operations.

Business bankruptcy might bring to mind bleak images of financial ruin that involve the loss of all valuable property. In reality, bankruptcy takes many forms—and in several situations, it’s a viable solution to the burden of debt that overshadows many business operations.

From liquidation to reorganization, bankruptcy's value depends on the needs and status of the business in question, as well as the owner's personal situation. Below, we highlight a few of the most common types of bankruptcy, as well as its potential to grant struggling businesses a fresh start.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy differs from reorganization in that it eliminates the need for repayment. Its alternate name, “liquidation” refers to its ability to eliminate most types of debt without a payment plan. 

Businesses of various types may also pursue this option. Sole proprietors, for example, often file for Chapter 7 under their own name. Business partners also often file for separate bankruptcies in their own names with the intention of addressing both personal and business obligations.

Chapter 11 Bankruptcy

Chapter 11 is an option that exists for corporate entities and high debt individuals.

Small business owners tend to shy away from this approach, as it can be expensive, time-consuming, and risky, but this view is an incorrect perception of the small business process. In 2020, the Bankruptcy Code was amended to streamline reorganizations for small businesses with debt under $7,500,000.  The process for small businesses is now simpler, less expensive, and more certain.  

Bankruptcy can be complicated and difficult for business owners. When in doubt, look to a trusted lawyer for support. A skilled commercial bankruptcy attorney can help you navigate your options to determine which solution will prove most beneficial for both you and your business. Contact Schwartz Law online or call 702.385.5544 today to get started with a consultation.