The goal of any business is to effectively manage cash flow, turn a profit, and steer the organization toward sustainable growth. But even the most well-managed businesses sometimes fall on hard times and may consider filing for bankruptcy, which does not always signal the end. This section provides information for struggling businesses that are considering bankruptcy, including a glossary of bankruptcy terms, what to consider before filing for bankruptcy, an overview of business bankruptcy, and more.
Ten Things to Think About Before Filing for Bankruptcy
Before you decide to begin a bankruptcy process there are ten simple questions worth considering. The linked article below provides additional detail.
- Is bankruptcy really necessary or can your financial issues be resolved outside of court?
- Do you need a lawyer? Although an attorney isn't required they can prevent costly mistakes.
- Do you intend to close a business permanently or can you recover?
- If you want to continue the business do you have a realistic plan to become profitable?
- If you want to continue to operate your business can you afford a bankruptcy attorney's assistance?
- If you want to continue the business can your existing management operate the reorganized company?
- Are some or all of your company's debts guaranteed by you or others?
- Do you need immediate relief from a particular problem such as foreclosure?
- Are you willing to expose your company to court and to creditors during a bankruptcy process?
- Are you willing to comply with the many restrictions of operating a business in bankruptcy proceedings?
What to Expect: Filing Bankruptcy
There are three kinds of bankruptcy a company may qualify for, referred to as "Chapters." The differences in the three forms of bankruptcy are significant and the advice of an experienced bankruptcy attorney can be critical in selecting and obtaining the kind of bankruptcy that is best for your business.
- Chapter 7 Bankruptcy - A trustee is appointed to take possession of the company's assets. A meeting of creditors is called that is referred to as a "341 meeting." At the meeting you are asked about the company's assets, liabilities, income, and expenses. The assets are sold and the proceeds are distributed to the creditors.
- Chapter 11 Bankruptcy - Your company becomes the "debtor in possession" with a right to retain its property. A "341 meeting" of creditors is held where disclosures are made about the company's financial position. The United States Trustee may appoint a "creditor's committee," usually composed of the 7 largest unsecured creditors. A reorganization plan is developed that will provide for payment to creditors over a reasonable period of time. When the plan is confirmed by the court the debts and liens not included in the plan are discharged.
- Chapter 13 Bankruptcy - A trustee is appointed but does not take possession of the company's assets. A "341 meeting" is held where the creditors examine the company's position. A plan must be filed within 15 days of the bankruptcy petition that devotes all of the debtor's disposable income to payments under a 3-5 year plan. Creditors do not vote on the plan. If the plan complies with the Bankruptcy code the court must confirm the plan. A discharge is granted when the debtor has completed payment on the plan.