How to Qualify for Business Bankruptcy

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How to Qualify for Business Bankruptcy

If your business is not doing well financially, and you are unable to pay your creditors, then filing for business bankruptcy may be an option for you. It is best to consult a bankruptcy attorney prior to filing for bankruptcy.

What Type of Bankruptcy Can I File?

There are many kinds of bankruptcy and each one is related to the way in which your business is structured. The three types of bankruptcy to consider are Chapter 7, Chapter 11, and Chapter 13.

Chapter 7

Chapter 7 which is also known as liquidation, is suitable for businesses that have no prospects and few assets. Thus, it is appropriate for sole proprietorships and small businesses. Under Chapter 7, the debtor’s assets are sold by the bankruptcy trustee to pay outstanding debts, and any debts that cannot be paid with the remaining assets, are discharged.

In order to be eligible to file for bankruptcy under Chapter 7, the debtor may be a person or business entity, including a partnership or corporation. A business is eligible for relief through Chapter 7 regardless of the amount of the business owner’s debts, or whether the business owner is solvent or insolvent.

However, an individual is not eligible to file for bankruptcy under Chapter 7 or any other chapter of the Bankruptcy Code if, within the prior 180 days, a previous bankruptcy petition was dismissed because of the debtor’s willful failure to make an appearance before the court or follow the orders of the court.

Chapter 11

If you have a business plan to enable your business to recover, then you may be a candidate for Chapter 11, which involves a reorganization of a business. The types of businesses that are eligible for Chapter 11 bankruptcy are corporations, partnerships, and sole proprietorships. If you select Chapter 11, then you will likely be watched very closely by a court-appointed trustee.

Chapter 13

Another option for sole proprietorships is Chapter 13, in which you inform the bankruptcy court about the ways in which you plan to repay your debts by filing a repayment plan. It is a reorganization bankruptcy that is usually reserved for consumers. If your personal assets are combined with your business assets, as is the case in a sole proprietorship, then you can prevent the loss of your home by filing Chapter 13 instead of Chapter 7.

In addition, there are services available that can assist small business owners with staying out of bankruptcy, and improving their credit rating.

Consulting a Bankruptcy Attorney

Prior to filing for business bankruptcy, you should first consult with a bankruptcy attorney. Your attorney will advise you on your options and will guide you through the process of filing bankruptcy. With the proper legal assistance, you will be able to more quickly begin rebuilding your business.

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Last Modified: 01-21-2015 11:46 AM PST

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