Like consumers, business owners have two primary options when filing for bankruptcy. They can opt for a Chapter 7 bankruptcy, which is a liquidation of the business assets. Alternatively, they can choose a Chapter 11 bankruptcy, which is a restructuring that allows them time to pay their debts.
In a Chapter 7 bankruptcy, it would mean the end of the business entirely. The company would completely cease operations. The assets would be liquidated and used to pay creditors. There is an order of precedence for who can receive money from the bankrupt company. Bondholders usually have the first preference. At the conclusion of the bankruptcy, there would be no debts left and no more company.
In a Chapter 11 bankruptcy, the company is trying to restructure its debt, trying to gain more time to pay. The company wants to stay in business, but it needs breathing room. The company does not need to surrender assets; rather, it seeks to still pay debts to some extent and emerge from bankruptcy. The hope is that the company can eventually return to profitability. The creditors may still be paid something, albeit under different terms and through a more extended timetable. Chapter 11 restructurings are very detailed processes that can take a considerable amount of time. There are extensive negotiations with creditors, who may face some pressure to agree to a deal at the risk of getting less or nothing.
An experienced bankruptcy attorney would review your legal options with you and give you advice about how to make it through the process and protect your own interests to the fullest extent possible.
The attorneys at Bountiful Law work with both consumers and businesses when they run into financial trouble and need a fresh start. To speak with a bankruptcy attorney, you can send us a message online or call us today at 425.584.2162.