Do you happen to be an owner of a small business being strangled by huge debts and limited cash flow? Are you unable to repay your priority, secured and other debts? Have you come to a point that you are using the money from withheld taxes for business? If so, here are some business bankruptcy FAQ's that can help you understand what’s involved:

1. What are the different types of business bankruptcies?

Sole proprietorships, partnerships, LLCs and corporations can file for Chapter 7 or Chapter 11 bankruptcy. Chapter 7, which is liquidation, involves non-exempt business assets being put up for sale, and the proceeds are then used to repay creditors. After the bankruptcy process is complete, the business would cease to exist. Chapter 11 is business reorganization. It allows businesses more time to be able to repay debts. Businesses that see no point in continuing operations may seek protection under Chapter 7, while viable businesses can choose Chapter 11 business bankruptcy.

2. What are the challenges of a business bankruptcy filing?

Sole proprietors have to file for bankruptcy in their individual name because the sole proprietorship business is an extension of the business owner. Partners run the risk of being sued by the case trustee in a Chapter 7 business bankruptcy in case the assets of the partnership firm are inadequate to repay its debts.

3. Chapter 7 or Chapter 11 business bankruptcy - which option should a business choose?

The business owner must understand that by reorganizing his business by seeking protection under Chapter 11, he cannot expect more desirable market conditions. He must opt for this type of bankruptcy filing only when he is operating a business that can make profits in the future given its current strengths. Chapter 11 business bankruptcy will help him free up some cash that can be used to run the day-to-day operations of the business. It will also help him reject expensive leases and stop creditors from taking over his business assets.

4. What happens when a Chapter 11 bankruptcy process fails?

The court will convert it to a Chapter 22 bankruptcy, which is quite identical to a Chapter 7 bankruptcy. The business assets are sold and the business ceases to exist after the Chapter 22 bankruptcy process is completed.

5. What should the business owners pay attention to?

Before opting for Chapter 11 bankruptcy, the business owner must compute his priority debts. If he cannot repay these debts, Chapter 11 business bankruptcy could not help him. He must also check the extent of his secured debt. Secured creditors don’t reduce a business owner’s debts because the former could always take possession of the assets of the business. The business owner must make a list of his creditors and understand their classification and priority before selecting a business bankruptcy category.

These are some of the important factors that all business owners must pay attention to before seeking protection under Chapter 7 or Chapter 11 business bankruptcy.

Small businesses seldom contemplate bankruptcy unless serious financial pressures exist. If your company has fallen behind with loan providers and you are thinking about chapter 11 bankruptcy, there are alternative solutions such as debt management or consolidation. Look at all possibilities before declaring different types of business bankruptcy.

An Assignment for benefit of Creditors can be considered by business owners who don’t want to seek protection under a Chapter 11 business bankruptcy. This alternative should only be taken into consideration when the business is no longer sustainable due to an unprofitable product line and/or a mountain of debt. Chapter 7 and Chapter 11 business bankruptcy differ from an assignment for benefit of creditors. It is regarded as a substitute for a Chapter 7 business bankruptcy, and it must not be taken into consideration by business owners who need reorganization. A Chapter 11 bankruptcy should be opted for by businesses that need restructuring.

State laws govern an Assignment for Benefit of Creditors, therefore, it could vary from one state to another. State courts are the one that supervise this process. In an Assignment, an assignee is empowered by the state court to take control of the assets of the business. It is usually the business owners and creditors who choose the assignee, and it is also vital that the chosen assignee is experienced and reputed. You need to take note that in the case of a business bankruptcy, it is the court that selects the case trustee. The business assets must be assigned by the business owner to an assignment estate.

A fiduciary role is played by the assignee towards the creditors, and he makes it a point to be able to sell the assets of the business at the maximum price. After having sold business assets, the assignee would pay the creditors, deduct certain fees and costs from the proceeds and would return to the business owner whatever is left.

All other processes in an Assignment move like they do in a Chapter 7 business bankruptcy. A list of all creditors are filed by the business owner. Creditors are then informed by the assignee of the Assignment, and would set a date wherein creditors must be able to lodge their claim. The business becomes hollow the moment that the assets are transferred to the assignment estate. Even if a case is filed against the business, the creditor wouldn’t get anything.

When the market price of all the business assets is not enough to cover debts, business owners should choose Assignment over business bankruptcy. Assignment is less formal than a business bankruptcy process and moves much faster. Any sale made by the assignee could not be objected to by creditors. However, until the other party gives consent, an assignee could not force transfer contracts and leases. In a chapter 7 or Chapter 11 business bankruptcy, no such consent is needed. Therefore, business owners with franchisees must not contemplate an Assignment, but a bankruptcy.

Smaller sized businesses seldom look into bankruptcy unless serious financial pressures exist. If your company has slipped behind with creditors and you are thinking about business bankruptcy, there are alternative solutions such as debt management or consolidation. Look at all possibilities before declaring Chapter 11 business bankruptcy.

Many businesses look at a business bankruptcy as a manner to get out of debt, however, bankruptcy is not that easy. You need to determine whether or not your business has good potential. A Chapter 7 bankruptcy, which would liquidate the business, will be appropriate if your business doesn't have a future anymore. On the other hand, filing for a Chapter 11 bankruptcy would be suitable if you see that your business could still hack it in the future. Consider contemplating on and preparing the following before you file for business bankruptcy:

1. Prepare tax records, financial statements and contracts, both executed and under execution. These need to be filed together with the bankruptcy petition.

2. When you are planning to file for business bankruptcy, you need to have an attorney who is considered as an expert on the type of bankruptcy that you would be filing for. For instance, filing for a Chapter 11 bankruptcy would need you to have somebody who is an expert in Chapter 11 bankruptcy and not with a Chapter 7 bankruptcy. This is primarily due to the fact that a Chapter 7 bankruptcy lawyer may not be effective at presenting your case to creditors, which is required in a Chapter 11 bankruptcy. A Chapter 7 bankruptcy is very uncomplicated in a way that the court would just help you liquidate your business. Reorganization under Chapter 11 bankruptcy would require discussions between you and your creditors, which would be more complex as compared to liquidation.

3. A Chapter 12 bankruptcy is for farmers, while a Chapter 13 bankruptcy, which is also known as a wage earners’ bankruptcy, is for sole proprietors, who are also wage earners.

4. It is essential that you will be honest with your lawyer, and inform him about the littlest financial detail that will support the bankruptcy case. Let him know about those things that are classified as priority debts which consist of employee benefits, child support, alimony, etc. Remember to notify your lawyer about how many creditors you have and whether they belong to secured, unsecured or partially secured creditors.

5. If you would be going for a Chapter 11 bankruptcy, you will be obligated by the court to be the case trustee (except of course in cases of fraud), and you will then become a debtor in possession. There will be an appointed committee of creditors, and a reorganization plan would be required of you to be handed in to court. If the committee of creditors approves of the reorganization plan you presented, then the court will give its affirmation. If Chapter 7 bankruptcy was your choice, then you need to submit to the court a list of your non-exempt assets, which will be sold off, and the proceeds shall be split up among creditors according to their priority.

Indeed, filing for business bankruptcy is not that simple and could get quite complicated in the process. This is why it is necessary for you to hire a business bankruptcy lawyer who have had in depth experience in dealing with the type of bankruptcy that you would be filing. Good luck.

A bankruptcy proceeding could make sense for a number of business owners. Even so, when business debt has grown to become too much, there are alternative choices. Business debt consolidation or debt management may be able to help a business get out of debt without filing chapter 11 business bankruptcy.

Business bankruptcy may look like an easy way out for businesses that are heavily weighed down by debt, but bankruptcy is not as simple as it may seem. You must figure out whether your business has a future or not. If your business does not have any future, then you may choose to file for bankruptcy under Chapter 7, which will help liquidate the business. However, if you can see some light at the end of the tunnel, you may prefer to file for bankruptcy under Chapter 11, which will help reorganize the business. Before filing a business bankruptcy, consider and prepare for the following:

1. Keep your financial statements, tax records, and a list of contracts (executed and under execution) ready. These have to be filed along with the bankruptcy petition.

2. Filing for business bankruptcy requires an attorney who is an expert at your type of bankruptcy. For example, if you are seeking protection under Chapter 11, it’s best not to work with an attorney who specializes in Chapter 7 bankruptcies. This is because under Chapter 11 bankruptcy, you must skillfully present your case to creditors and an attorney who specializes in Chapter 7 bankruptcy may not be good at it. Chapter 7 bankruptcy on the other hand, is very straightforward and blunt, your business must be liquidated and so the court will help you liquidate it. Chapter 11 bankruptcy is reorganizing the business and it needs you to negotiate with your creditors, which is much more than a plain blunt approach.

3. If you’re a farmer, you can file for protection under Chapter 12 and if you’re a sole proprietor and a wage earner, you can opt for filing business bankruptcy under Chapter 13, which is known as wage earners’ bankruptcy.

4. Be honest and truthful with your lawyer and tell him every single financial detail that will help your bankruptcy case. Talk frankly about your priority debts like alimony, child support, employee benefits due, etc. Also, discuss the number and nature of creditors for example, fully secured creditors, partially secured creditors, unsecured creditors, etc.

5. If you’ve filed for bankruptcy under Chapter 11, the court will require you to act as the case trustee (except in certain fraud cases) and act as a debtor in possession. A committee of creditors will be appointed and you will be required to submit a reorganization plan to the court. The committee of creditors will then vote on your reorganization plan and if it is approved, the court will confirm it. If you have opted for filing business bankruptcy under Chapter 7, you will have to furnish a list of your non-exempt assets to the court, which will then dispose them and divide the proceeds among your creditors in order of their priority.

Filing a business bankruptcy may seem simple, but is more complicated than you can ever imagine. Get hold of an attorney who specializes in your type of bankruptcy before moving an inch. Good luck.

Small business owners rarely consider bankruptcy except when there are serious pressures. If your company has fallen behind with loan providers and you are considering chapter 11 bankruptcy, there are additional options such as business debt consolidation or debt management. Consider all possibilities before declaring business bankruptcy.