Choosing the Best Business Bankruptcy Option

Posted on December 8, 2011 at 3:45pm by

Business bankruptcies have been slowing down of late, but that is not necessarily a good thing for every business. Only five public companies filed for Chapter 7 or 11 bankruptcies last month as opposed to 19 a year ago. Public companies tend to be the largest, so while their bankruptcies are falling, smaller businesses are making up a larger portion of bankruptcies.

Attributing partially to the decrease in bankruptcies filings are the gradual improvements in credit markets. Weaker companies may not be filing for bankruptcy because they are putting it off by raising capital via higher yield financing or by renegotiating credit deals with their lenders. This is a precarious situation and a short-term solution; if credit markets get worse, the companies could have no choice but to file for bankruptcy. If your company is facing financial difficulties and is considering bankruptcy, contact a Kansas City bankruptcy attorney at the Sader Law Firm to learn about your options.

Types of Bankruptcies and their Differences

There are two types of business bankruptcies: Chapter 7 and Chapter 11. It is important to consult with a bankruptcy attorney to learn about which one is best for your business.

Chapter 7 Bankruptcy

A Chapter 7 bankruptcy, commonly known as a straight bankruptcy, involves basic liquidation and is the simplest type of bankruptcy available.

A Chapter 7 bankruptcy is best when:

  • The business has no future
  • The debts of the business are so extensive that restructuring them and continuing on is not feasible
  • There are very little assets
  • It is easiest to start over from scratch because there is no way to rehabilitate the business

Chapter 11 Bankruptcy

This type of bankruptcy is reorganization. The business continues to operate while working out a debt repayment plan. However, as soon as a business files this bankruptcy, it gives up control — the court and creditors will determine the direction, organization, and execution of the business. A Chapter 11 bankruptcy is usually expensive and takes a lot of time and effort on the part of the company’s officers to deal with lawyers, negotiate with creditors, adhere to the bankruptcy laws, and have the company emerge as a successful and leaner new business. It is for these reasons that many Chapter 11 reorganizations fail.

A Chapter 11 bankruptcy is best when:

  • The company is expected to still have a lot of sales and demand for its products or services
  • There are a lot of assets even if they are outweighed by debts
  • The company’s officers are willing to put the time and effort into reorganizing and creating and meeting new repayment plans

Contact an experienced Kansas City bankruptcy lawyer at the Sader Law Firm to decide the best plan of action for your business.