Chapter 7 Vs Chapter 11 Bankruptcy

A company that finds itself in a difficult financial position will often have to choose between a few different options. One of the most difficult aspects of managing a business comes down to the choices that you make when you’re facing a severe financial deficit. Chapter 7 bankruptcy or Chapter 11 bankruptcy are both available to businesses as well as for individuals. Here are some of the differences between the types of bankruptcy and what you can expect from each type of bankruptcy proceeding. 

Chapter 7

A chapter 7 bankruptcy is otherwise called a liquidation bankruptcy in this involves the process of your business going through a complete reorganization. The reorganization process will liquidate the majority of assets in order to pay off creditors. The chapter 7 process works very similarly to what an individual would experience in a chapter 7 bankruptcy with a business. Bankruptcy courts will appoint a trustee that will be responsible for selling off the assets in order to pay off creditors. A chapter 7 bankruptcy will only manage the secured debt versus unsecured debts. Loans that were issued by financial institutions that are not specified as secured debt, such as training costs may require full repayment. Secured debts, such as an expensive piece of me sharing, or the overall cost of the building could be taken out of the trustee funds. Assets in cash will also need to remain in order to pay the unsecured debt to creditors as well as shareholders that might be involved with forms of unsecured debt with the company. 

A corporation or small business needs to be found eligible for chapter 7 bankruptcy but also realize that the majority of their business. Assets may be sold off in order to repay their debts. 

Chapter 11

Chapter 11 bankruptcy is only available to businesses and this type of bankruptcy is known as the rehabilitation or reorganization bankruptcy. This type of bankruptcy is one of the most complex forms and one of the most expensive forms of bankruptcy. Corporations, joint ventures, limited liability companies, and partnerships can all qualify for Chapter 11 bankruptcy. Under a Chapter 11 bankruptcy, it’s possible to reorganize the debt of the company to seek a method of repayment over time. 

Unlike a chapter 7 bankruptcy, a Chapter 11 bankruptcy insurers of the business can continue its operations. Chapter 11 bankruptcy is most often used by businesses because it can give the business the chance to continue its operations. Under a Chapter 11 bankruptcy, the business will remain open and continue to take initiatives to stabilize the finances and settle debts. This can often involve selling off assets, cutting expenses for the company, negotiating debts with creditors, and working under court supervision to determine the best path for the repayment of debt. 

A new subchapter to Chapter 11 ensures that entities with less than $2.7 million in debts are able to enact shorter deadlines and completing their bankruptcy process and this can improve the level of flexibility in restructuring plans with creditors. This greater level of flexibility can get people through the bankruptcy process faster and ensure that bankruptcy is not something that looming over a business over the long term. 

Perhaps the greatest differences between chapter 7 Vs chapter 11 bankruptcy come down to the requirements of an appointed trustee. Under Chapter 7, the trustee will be responsible for selling off most of the assets of the business in order to pay back creditors. With most of the business assets gone. The business will not be able to continue its operations. Under Chapter 11, restructuring the business only needs to occur to establish a repayment plan for debts. When a company is successful in Chapter 11 it will need to continue operating in an efficient manner with its newly structured debt but if it is possible to complete the Chapter 11 bankruptcy proceeding, a company can be free of its debts. 

If you’re interested in learning more about Chapter 7 Vs Chapter 11 bankruptcy and which type of bankruptcy is going to suit your situation better, contact our team today so that you can find out more about the process of filing for bankruptcy with your company.