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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 Filing: What are the next steps?

The word “bankruptcy” gets tossed around a lot… But what does it actually mean and what happens after your company files a bankruptcy. In layman’s terms, bankruptcy is when your company has financial obligations and liabilities that exceed your assets, making you unable to pay your bills as they come due. Filing for bankruptcy is a judicial solution for the debtor—your company—to seek relief from your creditors. The courts will determine if you are unable to satisfy your debts and, if so, attempt to determine a fair way to satisfy your creditors.

Filing for bankruptcy is similar to any other lawsuit: a bankruptcy petition simply starts the process, without guaranteeing any outcome or resolution. However, unlike other legal proceedings, a bankruptcy filing immediately generates an automatic stay, also known as bankruptcy protection. This injunction stops creditors from taking additional action to attempt to collect on their debts until the bankruptcy case is resolved. This stay essentially gives your business temporary relief and time to develop a plan for debt resolution.

As your bankruptcy case proceeds, different creditors will be treated differently, but if or when the court declares your company bankrupt, the court will attempt to satisfy your financial obligations in an equitable and appropriate way.

Of course, just as every company is unique, every bankruptcy filing is different. Depending on the financial obligations, assets, and even structure of your business, your bankruptcy proceeding will unfold differently. Perhaps the most important question is whether to file a Chapter 7 bankruptcy or proceed with a Chapter 11 bankruptcy filing. Chapter 7  dissolves your business, liquefying assets to satisfy creditors. Chapter 11 involves reorganizing the business to regain solvency and profitability.

If you’re considering filing a business bankruptcy, now is the time to consult a professional bankruptcy lawyer like David Ganje. We can help determine the right course of action for your particular company, helping your business achieve the best outcome given the circumstances. There may be non-bankruptcy options available for resolving your business debts so call 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