In a bankruptcy proceeding, your assets and liabilities are examined to determine whether your debts should be discharged or restructured. One option is to try to renegotiate your debts before you need to file for bankruptcy.
While filing bankruptcy is a last resort, it may be your best option. For businesses, there are two forms of bankruptcy, chapter 7 or chapter 11. Chapter 7 is a complete liquidation and chapter 13 is a business restructuring.
A chapter 7 liquidation involves the sale of your assets to pay what’s owed to your creditors. Some assets are exempt from sale, but all nonexempt assets may be included in the liquidation process. When you file a petition for Chapter 7 bankruptcy, typically all collection actions against you must stop. About 40 days after you file, a meeting with your creditors occurs, and you must agree to answer all questions under oath. If your Chapter 7 bankruptcy is successful, you receive a discharge that releases your business from personal liability and liquidates it.
A chapter 11 bankruptcy requires submitting a reorganization plan to restructure your debts and repay your creditors over time. It helps you create a plan to keep your business active while paying all your creditors over a set period. When a business files a petition for Chapter 11 with the court, it may be voluntary or involuntary. A voluntary petition is filed by the business, but an involuntary petition is filed by the business’ creditors once certain requirements have been met.
You have approximately four months to come up with a reorganization plan after filing, but in some cases, it can be extended.
The best time to talk to an attorney about your business finances is before you need an attorney. Please feel free to call or email us to see how we can help. 415-355-4529.