A business is an enterprise that is run with an object to trade or manufacture and in turn generate a profit. It can also trade in goods or services. Businesses which they run into financial trouble and cannot pay their creditors are referred to as Bankruptcy business. The US Federal bankruptcy laws has clear cut rules to that cover such companies who either become bankrupt or face insurmountable debt
The Bankruptcy act has basically 3 chapters viz chapter 7, 11 and 13. Each of the chapters has a different applicability and purpose. However they inter relate with each other.
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a) Under chapter 11, a bankrupt company or bankrupt business has an option to file to reorganize its business and get back to business again. Some of the big names who have filed for bankruptcy under chapter 11 are K Mart and World.com. Chapter 11 bankruptcy is fairly complicated and it is always better to proceed under this chapter with a qualified lawyer.
b) Under chapter 7 or 13 bankruptcy proceedings can be filed by Proprietorship companies or individuals. The proprietor must file bankruptcy, since the assets and the liabilities of the business are really belonging to the proprietor himself. The individual owner may file Chapter 7, Chapter 11 or 13 business bankruptcies. A problem that an owner of a bankruptcy business faces is whether to close business or start afresh after filing. There is no easy answer to this. Reorganization by itself cannot generate a market or increase revenue. However reorganization can free up cash from servicing the old debts to permit current operations.
Bankruptcy reorganization in Chapter 11 is a difficult proposition and is also pretty expensive. In this chapter the requirements of interface with counsel, and negotiate with creditors is very important. The court could accept a plea that, in exchange for the protection of the automatic stay the debtor will provide full disclosure of his financial condition to creditors. Most reorganizations fail, usually for lack of a tangible plan to solve the problems.
Businesses with a smaller capital base are in reality an extension of the owner's skills. These do not need to reorganize. For such bankruptcy business the owners are better of in filing under Chapter 7. Individuals can get a discharge of the debts and a chance to start over. Corporations do not get discharges the way an individual does. Nonetheless, a Chapter 7 bankruptcy can provide an orderly liquidation under the direction of the trustee. In addition there is no expense to the shareholders. Creditors in Bankruptcy business proceedings are assured that they will be paid out of the available assets sale as per their priority. However Corporations, limited liability companies and partnerships are legal entities. They can file a chapter 7 or chapter 11 bankruptcies directly.
The bankruptcy law is exhaustive and needs study before filing for bankruptcy business.
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