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*DISCLAIMER: The opinions expressed regarding Business Bankruptcy are based on our relevant experience. We are not attorneys, and do not provide Bankruptcy Services or legal advice. Please seek qualified counsel for in depth information on Bankruptcy.* That said, we have seen business bankruptcy play out first hand many different ways. From our experience it is a bad option MOST of the time, and unattractive for a number of reasons. Let's briefly talk about the most common Chapters of Bankruptcy and explain why:


Chapter 11:


This can be most complex and expensive bankruptcy option, better suited for large corporations with few, if any, Personally Guaranteed debts. Despite that, it remains one of the most common forms of bankruptcy filed by businesses of all sizes. Instead of a debt settlement or consolidation firm negotiating a repayment plan it is done through the courts. This requires hiring an attorney licensed in your state, or a firm licensed in multiple states if you have a larger operation with more than one location. The court will act as the arbiter between you and your creditors, and based on the creditor's position in line, and the nature of the obligation, they will be assigned a priority level determining how much and under what circumstances they will be paid . Chapter 11 only applies to the business unless it is a Sole Proprietorship, so if you signed a Personal Guarantee (most of the time you did), then even after the bankruptcy many of your unpaid/partially paid creditors will come back and pursue you personally for the obligation. In such cases you would then end up having to pay them out of your own pocket, or file another separate bankruptcy case as an Individual (Chapter 7 or 13). Chapter 11 can be a very lengthy process, creditors may opt out if you signed a Personal Guarantee, and even if they don't, many repayment agreements issued by the court do not go as far as what could be achieved otherwise discounting your balances.


Chapter 7:


Another very common form of bankruptcy that can be filed by individuals and businesses. In this case you have thrown in the towel, and don't see any hope in reviving your business/personal financial situation outside the courtroom. Also known as a “straight” or “simple” bankruptcy, this Chapter liquidates the assets of your business to pay your highest priority creditors, you close your doors, and walk away. However, in most cases (unless you are a Sole Proprietor), walking away does not mean leaving all your debts behind. Again, you may have extinguished the business's liability by filing Chapter 7, but if you Personally Guaranteed the debts, many will still pursue you personally. At this point, as with Chapter 11, you would need to either pay them out of your own pocket, or file another separate bankruptcy case as an individual. Again, it is our belief most businesses can be saved without filing bankruptcy, and better alternatives exist for both you and your creditors.


Chapter 13:


If you are going to file bankruptcy, this is by far your creditor's favorite choice. Having experience as former debt collectors, we know Chapter 13 receives special attention from creditors because it is such a good deal for them. It can be hard to qualify as a business unless you are a Sole Proprietor, and more of a way to shed your personal liability. Well positioned creditors get paid most, if not all, of what they are owed over a time frame allotted by the courts. It is our view that if you can afford to file Chapter 13, better and cheaper alternatives exist worth pursuing.

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