Times are tough, and a lot of small or medium-sized businesses find themselves facing an uncertain financial future.
When that happens, it’s only natural to think about the potential options, including bankruptcy. Chapter 7 and Chapter 11 are two different chapters of the United States Bankruptcy Code that provide options for individuals and businesses to address their financial difficulties and debts. Here’s a brief overview of the key differences:
Chapter 7 is known as a “liquidation bankruptcy.” When a business simply doesn’t have a future where it can eventually regain solvency, this is the option to take. The goal of a Chapter 7 for a business is to sell off whatever assets the business may have and repay their creditors as much as possible. While this does generally mean closing the business, it can leave you free to start over again with a new enterprise, without a ton of unresolved debt or lawsuits hanging over your head.
Sometimes, a business can regain its financial footing without shutting its doors. When there’s a clear likelihood that your company’s operations will eventually get back into the black, you can use Chapter 11 to help you struggling enterprise restructure its debts and develop a plan to pay off its creditors over time. Typically, you retain control over the business, subject to the court’s approval.
Small businesses facing financial difficulties should carefully consider their specific circumstances and seek legal advice to determine whether Chapter 7 or Chapter 11 bankruptcy is the most appropriate option for addressing their financial challenges and restructuring their debts. The choice between the two chapters depends on factors such as the business’s viability, the desire to continue operations, and the nature of its debts and assets.