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If you’re considering bankruptcy for your business, you’re sure to have tons of questions. That’s why we’ve compiled answers to the most frequently asked queries about business bankruptcy to help you make informed decisions!

The world of corporate bankruptcy law can be complex and intimidating. Don’t let confusion get in the way of making the best decisions for your company: read on to get answers to the most commonly asked corporate bankruptcy questions.

Q. What is bankruptcy?

A. When a business has financial liabilities that exceed their assets or is unable to meet financial obligations, that company is insolvent—unable to pay their creditors, the company must come to an agreement with their creditors regarding payment or file for bankruptcy protection. This judicial solution gives the courts the power to settle the company’s debts.

Bankruptcy proceedings can be initiated by the debtor or by the creditor (called an involuntary bankruptcy). Filing a bankruptcy petition affects all of your creditors including:

• Secured creditors (those with a lien on your property)
• Unsecured creditors (vendors, credit card companies and others without a security interest in your property
• Judgment creditors (creditors who have sued and obtained a judgment against the debtor prior to the bankruptcy filing)
• Creditors with super priority claims (those with priority over other creditors because of special rules within the bankruptcy)
• Creditors with administrative claims (creditors such as accountants or lawyers with priority because of their assistance in the bankruptcy filing)

Q. What does filing for bankruptcy mean for my business?

A. Filing a bankruptcy petition simply starts a legal proceeding, with no guarantees regarding the outcome. That is to say, the debtor will present evidence of its insolvency, but there is no guarantee that the court will declare them bankrupt. This statutory process gives creditors and other parties the opportunity to challenge the debtor’s allegations and object to the relief being sought by the debtor.

Filing for bankruptcy does immediately put into effect an “automatic stay,” an injunction that stops creditors from trying to collect their debts until the bankruptcy court rules. This stay is issued against all creditors upon filing a bankruptcy petition. The automatic stay is designed to give debtors temporary relief from their financial obligations, giving them the breathing room to figure out how to deal with their debts.

If the courts declare your company bankrupt, then a settlement will be worked out with your creditors to satisfy all or part of your debts. Depending on the bankruptcy chapter you filed under, different rules apply.

Q. What is a business workout?

A. A business workout is a non-judicial resolution of your company’s financial obligations. Business workouts are settlements between a company and its creditors that satisfy the businesses’ debts, enabling it to continue operation. Also known as bankruptcy prevention, these arrangements are made outside of the court system.

While it may be surprising that creditors are willing to participate in business workouts, they’re more likely to receive greater compensation for their debts if your company does not file for bankruptcy. Using an alternative to corporate bankruptcy proceedings benefits creditors as well as the debtor, because some, or even most, of the debt will not be repaid under a bankruptcy proceeding. Secured debt, unsecured debt, and tax debts can all be resolved as a part of a workout.

Corporate Bankruptcy: When Should a Business File for Bankruptcy?

When your company is facing money problems, it can be hard to know when to file for bankruptcy. Consulting with an experienced bankruptcy lawyer can help you determine if your business must file for Chapter 11 or Chapter 7 bankruptcy.

In the current economic climate, more and more businesses are suffering from increased financial stress. When your debts are piling up, it can be hard to decide if or when to file for bankruptcy protection. Here is a brief overview of the issues surrounding bankruptcy, but you should always consult with a professional bankruptcy attorney prior to making any decisions regarding a bankruptcy filing.

The simple answer is, try every other solution before filing for bankruptcy. Even if your company is overwhelmed by debts and creditors, there may be non-judicial resolutions available. Financial restructuring and workouts can help you satisfy your debtors without having to file for bankruptcy. In fact, simply letting your creditors know you’re considering bankruptcy may be incentive enough for them to come to the bargaining table! These types of bankruptcy prevention strategies create a compromise solution between your company your business debtors. The end result is a negotiated partial repayment whereas a bankruptcy would likely result in the creditor getting nothing. Workouts and debt restructuring are a way of resolving your debts without the hassle, cost, or embarrassment of filing bankruptcy.

For small business owners, a business bankruptcy can also impact your personal finances. In partnerships and sole proprietorships, you can be held personally liable for your company’s debts, and your assets can be used to satisfy your creditors. Obviously, in these cases, you’ll want to seek every possible alternative to bankruptcy in order to safeguard your personal property. Additionally, filing for bankruptcy will likely make it harder to start a new business in the future. Not only will you have depleted assets, but the social and financial stigma of bankruptcy may also be a problem for you.

However, if your debt problems can’t be resolved any other way, bankruptcy protection may be your only option. Depending on your company’s structure, there are a number of different options available for corporate bankruptcy. In order to determine the most appropriate type of bankruptcy for your business, you’ll need to consult an experienced bankruptcy attorney. In fact, if your debts are mounting, you may want to speak with a bankruptcy lawyer before the situation becomes truly dire. He or she may be able to help get your company turned around from the brink of disaster with knowledgeable advice and guidance.

If you’re considering business bankruptcy, take control of your circumstances by contacting a bankruptcy professional today!

Author: Peter Gitundu

Bankruptcy can happen as a result of your own fault or it could be as a result of genuine financial crisis that was otherwise not anticipated. By your own fault I mean, it could be due to carelessness in handling your money, or even operating your life or business without a clear budget.

Whatever the reasons could be, it is quite important to realize that there will be consequences which you will have to face and live with. When it comes to business bankruptcy, probably the most obvious consequence is that you will have to close down your business and have your employees dismissed.

However, this is subject to the chapter under which you file your insolvency petition. In most cases this will happen under chapter 7, which is also known as the liquidation chapter. If you file under chapter 13, you will have the chance to reorganize your finances and come up with a repayment plan as you continue with business.

If you are file for bankruptcy while in a partnership, the partnership will more likely than not be dissolved. This is unless the partnership deal that you signed provides otherwise. If there happen to be any loans that your partners had cosigned with you, they may be forced to pay up on your behalf. Once you have filed for insolvency, it may prove hard for you to start a back-up business as your name will remain in the insolvency records for a period not exceeding ten years.

About the Author: Peter Gitundu creates interesting and thought-provoking content on finance.

Article Source: http://www.articlesbase.com/personal-finance-articles/consequences-of-business-bankruptcy-912099.html

  1. Introduction to How Bankruptcy Works [1]
  2. Bankruptcy: Terms and Types [2]
  3. Chapter 11 – Business Bankruptcy [3]
  4. Personal Bankruptcy [4]
  5. The “New” Bankruptcy Law [5]
  6. Origins of Bankruptcy [6]

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• “An Overview of Corporate Bankruptcy.” Investopedia, July 8, 2005. http://www.investopedia.com/articles/01/120501.asp
• “Reorganization under the bankruptcy code, chapter 11.” Public Information Series of the Bankruptcy Judges Division. U.S. Courts, December 1998. http://www.ndb.uscourts.gov/forms/Chapter11Information.htm
• Summers, Mark S. “Bankruptcy Explained: A guide for businesses.” John Wiley & Sons, 1989. 0-471-61982-5.
• The United States Trustee Program. U.S. Dept of Justice. http://www.usdoj.gov/ust/