Business Bankruptcy
Businesses are typically operated as a sole proprietorship or in the form of a corporation or LLC. When operated as a sole proprietorship, the business assets and debt belong to the individual and bankruptcy relief would involve the individual person filing for bankruptcy relief. But when a business is operated in the form of a corporation or LLC, the business assets and debt belong to the corporation or LLC which is separate from the person and bankruptcy would be filed by the corporation or LLC. If a personal guarantees the corporate debt, he may be liable for the corporate debt.
An individual with business debt may consider filing for bankruptcy relief under chapter 7, chapter 13, or chapter 11. A corporation or LLC may consider filing for bankruptcy relief under chapter 7 or chapter 11.
Chapter 7
Chapter 7 involves the liquidation by a chapter 7 trustee of nonexempt assets and the discharge of debt. A corporation or LLC though do not receive a discharge of debt at the end of the case.
Chapter 13
Chapter 13 provides the opportunity for an individual operating an unincorporated business to reorganize the business while under the protection of the Bankruptcy Court. In chapter 13, the individual proposes a chapter 13 plan to be considered for approval by the Bankruptcy Court. In chapter 13, there is no voting by creditors on the chapter 13 plan, but they are allowed the opportunity to object to the chapter 13 plan.
Chapter 11
In chapter 11, the debtor is automatically authorized to operate its business as a "debtor in possession." The Bankruptcy Code also authorizes the chapter 11 debtor to use, sell, or lease its property in the "ordinary course of business." This allows the debtor to continue to freely engage in its ordinary business transactions. A court order is required to use, sell, or lease property outside of the ordinary course of business.
The Bankruptcy Code provides various provisions to permit a "small business debtor" to pursue expedited procedures for reorganization. A small business debtor is defined as a person who engages in commercial or business activities that has certain total debt less than $2 million.
A committee to represent the interests of unsecured creditors may be appointed by the U.S. Trustee at the commencement of a chapter 11 case. If the debtor elects to be treated as a "small business debtor", the court may order that a creditors' committee not be appointed.
As part of the chapter 11 reorganization process, the debtor may "assume" or "reject" executory contracts or leases. Special rules apply to the assumption or rejection of shopping center leases.
The chapter 11 debtor has the exclusive right to file a chapter 11 plan during the first 120 days of the case. This 120 day period may be extended by the court up to 18 months after the commencement of the case. A small business debtor is allowed the exclusive right to file a chapter 11 plan during the first 180 days of the case unless extended by the court.
A chapter 11 debtor may obtain financing on an unsecured, secured, or superpriority administrative expense basis.
An individual with business debt may consider filing for bankruptcy relief under chapter 7, chapter 13, or chapter 11. A corporation or LLC may consider filing for bankruptcy relief under chapter 7 or chapter 11.
Chapter 7
Chapter 7 involves the liquidation by a chapter 7 trustee of nonexempt assets and the discharge of debt. A corporation or LLC though do not receive a discharge of debt at the end of the case.
Chapter 13
Chapter 13 provides the opportunity for an individual operating an unincorporated business to reorganize the business while under the protection of the Bankruptcy Court. In chapter 13, the individual proposes a chapter 13 plan to be considered for approval by the Bankruptcy Court. In chapter 13, there is no voting by creditors on the chapter 13 plan, but they are allowed the opportunity to object to the chapter 13 plan.
Chapter 11
In chapter 11, the debtor is automatically authorized to operate its business as a "debtor in possession." The Bankruptcy Code also authorizes the chapter 11 debtor to use, sell, or lease its property in the "ordinary course of business." This allows the debtor to continue to freely engage in its ordinary business transactions. A court order is required to use, sell, or lease property outside of the ordinary course of business.
The Bankruptcy Code provides various provisions to permit a "small business debtor" to pursue expedited procedures for reorganization. A small business debtor is defined as a person who engages in commercial or business activities that has certain total debt less than $2 million.
A committee to represent the interests of unsecured creditors may be appointed by the U.S. Trustee at the commencement of a chapter 11 case. If the debtor elects to be treated as a "small business debtor", the court may order that a creditors' committee not be appointed.
As part of the chapter 11 reorganization process, the debtor may "assume" or "reject" executory contracts or leases. Special rules apply to the assumption or rejection of shopping center leases.
The chapter 11 debtor has the exclusive right to file a chapter 11 plan during the first 120 days of the case. This 120 day period may be extended by the court up to 18 months after the commencement of the case. A small business debtor is allowed the exclusive right to file a chapter 11 plan during the first 180 days of the case unless extended by the court.
A chapter 11 debtor may obtain financing on an unsecured, secured, or superpriority administrative expense basis.