Bankruptcy Alphabet-B is for Business

Generally,
bankruptcy cases are a little more difficult and time consuming when
the debtor has a business, or even more so, when the business is the
debtor.

Photo by Poppy Thomas-Hill

                      B is for Business.

Photo by Poppy Thomas-Hill

Let’s start with the business as a debtor. The Bankruptcy Code allows businesses, as its own entity, to file either aChapter 7 Liquidation11. U.S.C. §109(b)-or a Chapter 11 Reorganization –11 U.S.C. §109(d).

This blog is beyond the scope of what happens to a business in a Chapter 11 case, but basically, as the sub-title alludes, a business is reorganized which may incorporate a plan to pay creditors through future income, through takeover by acquisition or through creditor ownership. Recent big name Chapter 11 bankruptcy cases involve Blockbuster Video and Major League Baseball’s Los Angeles Dodgers franchise.

In a chapter 7, a business is liquidated; either sold entirely, sold part by part, or abandoned if there is no significant property of the business. A recent large business Chapter 7 Bankruptcy case was Metromedia Restaurant Group, the parent company of Bennigan’s Restaurants.

Individual Debtors who own or have an interest in businesses can be problematic and a great amount of planning needs to go into whether to file a chapter 7 bankruptcy.

Generally, it is best to file a chapter 13 bankruptcy if the debtor owns a small business that he/she wants to resume operating that has a significant amount of property to conduct the business or is entitled to a significant amount of accounts receivables. If a chapter 7 were filed, those assets that are used for operating the business may be liquidated and sold.

A chapter 7 may be a good option for a business owner who doesn’t possess significant assets to run the business. An example may be a small landscaper with only a vehicle and regular lawnmower, a painter with only small tools of the trade, or a daycare operator who uses her home.

If you have a business and think bankruptcy may be the option for you, you should contact an attorney to review how best to plan and determine which chapter of bankruptcy is right for you.

Other Bankruptcy Lawyers talking about the Letter B are as follows:

 

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