What Happens to Your Business in Bankruptcy
Bankruptcy is a legal process that can provide relief to individuals or businesses struggling with overwhelming debt. If your business is facing financial hardship, filing for bankruptcy may be an option to explore. In this article, we will discuss what happens to your business in bankruptcy.
Types of Bankruptcy for Businesses
Businesses can file for bankruptcy under two chapters of the bankruptcy code: Chapter 7 and Chapter 11.
Chapter 7: In a Chapter 7 bankruptcy, the business’s assets are sold to pay off creditors. Once the assets are sold, the business is dissolved.
Chapter 11: In Chapter 11 bankruptcy, the business reorganizes its debts and continues operating. The court works with the business and its creditors to come up with a feasible, long-term repayment plan.
What Happens to Business Assets in Bankruptcy?
In Chapter 7 bankruptcy, the business’s assets are sold to pay off creditors. This may include inventory, real estate, machinery, and other assets owned by the business.
In Chapter 11 bankruptcy, the business typically retains ownership and control over its assets. However, it may need court approval for significant transactions or asset sales.
Employee Wages and Benefits
Wages and benefits owed to employees by a business filing for bankruptcy in Anniston are typically considered a priority claim and are paid before other unsecured debts. In Chapter 11 bankruptcy, employees are typically able to keep their jobs, though their compensation may be structured differently.
Customer Deposits and Gift Cards
If your business has outstanding customer deposits or gift cards at the time of bankruptcy, the bankruptcy court will determine the priority of those claims. In most cases, outstanding deposits and gift cards are not given priority treatment and may not be reimbursed.
What Happens to Your Business Debts in Bankruptcy?
To reiterate, in Chapter 7 bankruptcy, all of your business debts will be discharged, which means they’ll be forgiven and you won’t have to repay them. However, this also means the end of your business. In Chapter 11 bankruptcy, you’ll work with your creditors to develop a plan to repay your debts over time. This can involve negotiating reduced payments or interest rates, extending repayment periods, or settling debts for less than the full amount owed.
Bankruptcy can be a difficult and stressful process for any business owner, but understanding what happens to your business assets and debts can help you make informed decisions and plan for the future. Whether you file for Chapter 7 or Chapter 11 bankruptcy, it’s important to work with a bankruptcy attorney in Talladega and develop a plan that meets your specific needs and goals. With the right guidance and support, you can navigate the bankruptcy process and move forward with a fresh start. Be sure to consult with a qualified Oxford bankruptcy attorney to help you explore your options.
Attorney Steven A. Harris regularly blogs in the areas of family law, bankruptcy, probate, and real estate closings on this website. Mr. Harris tries to provide informative information to the public in easily digestible formats. Hopefully you enjoyed this article and feel free to supply feedback. We appreciate our readers & love to hear from you!
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