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Business bankruptcy, what are your options?

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The topic of this article is business bankruptcy. If your business is filing for bankruptcy, what exactly are your options? How do you go about filing for bankruptcy? What should you do? Is bankruptcy really the only way out?

I am going to start this article by saying that you should visit a credited and credible business credit counseling service, if you are considering bankruptcy. A lot of the time these credit counseling services-if they are legitimate-can help you come up with a plan to pay off your debts and your bills and save your company. However, if you have already tried credit counseling or for various reasons you prefer to file for bankruptcy, keep reading, and we will discuss your different options.

There are a number of advantages to bankruptcy. If you file for Chapter 7 business bankruptcy, once your debts are discharged through the bankruptcy court, they disappear. If you file for Chapter 13 bankruptcy, you will still have to pay some money. Bankruptcy is terrible for your credit, but you can immediately start to rebuild it. Chapter 7 bankruptcy can be finished in 4 to 8 months, while Chapter 13 bankruptcy might take a few months to get a plan approved, and then three to five years to complete that plan. Briefly, if you have few assets, large consumer debt, no real property, and a low income, you will best be served by filing for a Chapter 7 bankruptcy. If you don't qualify under these terms, you will be forced to file a Chapter 13 bankruptcy.

Before we discuss some of these options in depth, remember that you can make the process simpler and shorter before you actually even file for Bankruptcy. You can follow the example of TWA and Resorts International, and come up with a reorganization plan beforehand. Negotiate this plan and let your creditors and stockholders vote on it before you file. This will save you money because the process will be shorter, and it will let your creditors get more because you will be spending less in your legal fees. It also make people feel better about your business, and ends up in less disruption. This kind of preorganized and prepacked bankruptcy plan usually works best for Chapter 11 bankruptcy.

The way that Chapter 11 bankruptcy works is that the U.S. Trustee will form one or more committees in order to represent the interests of stockholders and creditors. A plan will be formed to get out of debt, and this plan must be acceptable to everyone involved: the company, the creditors, the stockholders, and the bondholders. The court must also confirm the plan. The court can confirm the plan even if it is rejected by some creditors or stockholders.

Now, your company might be so deep in debt that it is impossible for you to continue your business. In this case, you are going to want to liquidate all of your assets and file under Chapter 7 bankruptcy. Your assets will be sold by a court appointed trustee for cash. First the cash will be used to pay off all legal and administrative expenses, and then whatever is left goes to the creditors. Obviously, creditors don't particularly like this option. However, if your creditors are secured, their collateral will be returned. If you just plain don't have enough money, then everyone will be put together-secured and unsecured creditors, and they can file for money in case you ever get any. Stockholders don't have to be involved in this one, because you aren't going to have enough money to pay them off. But if you happen to pay off all of your creditors, then stockholders will be given a chance to file claims. Obviously, Chapter 7 is nice if there is no way that you can continue. But if there is a way to save your business, you will probably want to go with Chapter 13 bankruptcy or, best situation, Chapter 11.

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Posted by DF
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