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Types of Bankruptcy and CharacteristicsChapter 7Corporation goes out of business and a trustee is appointed to sell its assets. Proceeds are distributed to creditors and most remaining debts are wiped out. Also available to partnerships and individuals.Chapter 11Company continues operating and negotiates a court-approved repayment plan with creditors. Typically used by businesses but is available to individuals.Chapter 12Available only to family-owned farms and family fishing businesses.Chapter 13Individuals with regular income keep certain assets and pay debts under a court-approved plan. Typically takes 3 to 5 years. Not available to corporations but may be used by some businesses that are operated in sole proprietorship.In an uncertain economy, many companies seek a fresh start under Chapter 11 bankruptcy proceedings if they think they could be profitable by getting relief from their debts.
Generally, filing Chapter 11 is done voluntarily by a company to protect itself from creditors. It's different from Chapter 7, which involves liquidating or selling off the assets of a company closing its doors. Chapter 11 allows a business to continue day-to-day operations.
Here are some of the major steps involved in the Chapter 11 process, which can take many months or longer to complete.
Unlike Chapter 7 bankruptcy, debts are not simply absolved by filing Chapter 11, although debts are likely to be reduced or paid off over a period of years. And although you can keep operating, your reputation may be hurt with customers, suppliers and employees.
If your company is thinking about filing Chapter 11, you need a clear understanding of what's involved because this is a complex proceeding. Consult with your attorney and tax advisor to plan the most beneficial bankruptcy option.
*Securities offered through 1st Global Capital Corp. Member FINRA, SIPC. Investment advisory services offered through 1st Global Advisors, Inc. We currently have individuals licensed to offer securities in the states of AL, AZ, CA, CO, CT, FL, GA, HI, ID, IL, IN, KY, MI, MS, MO, NV, NJ, NC, OH, RI, TN, TX, WA, WV and WI. This is not an offer to sell securities in any other state or jurisdiction.