Types of Business Bankruptcies

Corporations, Limited Liability Companies, and Partnerships are legal entities separate from their shareholders or partners and can file Chapter 7 or Chapter 11. Sole Proprietorships (Self-Employed, Schedule C) are just an extension of the individual owner and can file Chapter 7, Chapter 11 or Chapter 13.

Should the Business be Reorganized (Chapter 11) or Liqudated?

It would not make sense to reorganize a business that requires little capital, has few assets and is merely an extension of the owner’s skill. Simply bankrupt the business and start a new one. Reorganization can not create a market that does not exist, increase your company’s gross revenue or make up for poor management team, but a reorganization can:

• Free up cash from paying debt to finance current operations
• Reject leases and contracts that are no longer advantageous
• Prevent the loss of vital assets or cash to creditor collection actions

File a Chapter 7 When

• The business has no future
• Does not have significant assets or qualities that can not be easily reproduced after bankruptcy
• Overwhelming debt that restructuring is not feasible