Business Bankruptcy And The Basics Of Filing
Individuals, creditors and businesses are protected by the business bankruptcy law of the United States. Bankruptcy laws for businesses facilitate and enable reorganization of debt to pay off creditors without the business being destroyed or the orderly liquidation of assets to pay off creditors and divide up a failing business for others to buy up parts of and try to make successful. These laws therefore protect businesses and their owners and operators as well as creditors, consumers, and the economy in general.
The federal courts of the United States is the one that presides over bankruptcy cases. There are two types of bankruptcy for business owners, as established by federal law in 1978: Chapter 7 and Chapter 11. Another type of bankruptcy is found in Chapter 13, however, this is not applicable to be filed by incorporated businesses. Self-employed individuals, however, may file under Chapter 13.
For businesses, Chapter 7 would entail filing a petition for bankruptcy, then a court-appointed interim trustee would be in control of the business’ non-exempt assets and accounts. During the time that the appointed and temporary trustee would be in control of the business, he exercises a broad power over it. Finding unsecured financing, making managerial changes, and liquidating assets so as to pay off creditors while trying to keep the business from total failure are all within the scope of the trustee's powers. Therefore, for liquidation, a Chapter 7 bankruptcy is the ideal option.
Chapter 11 is the bankruptcy option that has to do with reorganization. With a Chapter 11 bankruptcy, the court oversees the process by which the debtor business and its creditors work out payment arrangements that would be mutually beneficial and to provide them with a solution. The control of the business, as well as the possession of the assets, remain with the business’ principals. In court records, the business management team is the “debtor-in-possession”, or DIP, and there is no appointed trustee. However, if the creditors come to the conclusion that there is no viable solution being arrived at by the DIP and assets are continuing to be mismanaged, they can petition the court to intervene and appoint its own agent to replace the DIP. For the federal court to do this intervention, it must be satisfied with evidence that the creditors are correct in their assessment of continued mismanagement.
The forms filed by the business in federal court, like those that document the business’ assets and liabilities, should be perfectly accurate and filed in the correct manner. Failure to do this could result in the business losing its bankruptcy protection and the business could be totally lost. Therefore, if you own a business either alone or with partners and you deem that you may need to file for bankruptcy, you should consult a bankruptcy lawyer. When the lawyer is working in this capacity with you, he would be put on file by the federal court as a “Debt Relief Agent”.
If you own a business and you and any partners are considering filing for bankruptcy, consult a bankruptcy lawyer who has experience working with business owners.