Brundage Law P.A.

Business Lawyers For Business People

Differences between Chapter 7 and Chapter 11 bankruptcy

On Behalf of | Jun 23, 2023 | Business Litigation |

Declaring bankruptcy is an option for business owners who are over their heads in debt. In some cases, bankruptcy can create a level of financial freedom by helping to eliminate this debt.

But it’s important to remember that all not all bankruptcy filings are the same. When people file for personal bankruptcy, they can use either Chapter 7 or Chapter 13. Businesses are in a bit of a different position, but they can typically use Chapter 7 or Chapter 11. Let’s look at how these are different.

Chapter 7 liquidates assets

The goal of Chapter 7 bankruptcy is to liquidate assets and pay off debts. A business may have physical assets, real estate locations, inventory and much else. When everything that is not exempt – many things will be exempt from this process – has been sold off, remaining debts can be forgiven. This can allow the business owner to start over, although some business owners opt to simply close the store.

Chapter 11 restructures debt

With Chapter 11, your company still has the same debt obligations that you had before. They just get restructured so that they become affordable. The main benefit here is that the business continues operating while this is happening. You don’t have to close your doors, and you can still have an income. You’re simply moving the debt around to make it affordable and create avenues for your business to pay off those obligations.

No matter what type of bankruptcy you decide to use at your business, be sure you know exactly what steps you need to take.