Choosing Between Chapter 7 and Chapter 11 When Closing Down a Business

Closing Down Your Business? What’s Your Best Bankruptcy Option?

If your business is failing, and you see no prospect for turning it around, you may want to simply close it down now. A bankruptcy filing can help you put your losses behind you and move forward. What’s the best alternative when you know your business has no future?

Closing a small business

The Chapter 11 Option—Reorganization

A Chapter 11 filing is not generally a good choice for a business that does not plan to move forward. In a Chapter 11 proceeding, your goal is usually a reorganization plan to repay your creditors over a specific period of time. Such reorganization plans generally allow you to keep your assets and negotiate new payment arrangements if you can obtain the required creditor approval through voting.

Orderly Liquidation.

For many small businesses, an orderly liquidation is the best course of action. This process involves winding down the business. This can be done in a Chapter 11 or in anticipation of a Chapter 7 liquidation filing. It can also be done outside of bankruptcy. As we have written elsewhere, there are a multitude of traps for the unwary, and anyone pursuing this course of action should have and rely on the advice of a qualified attorney experienced in business bankruptcy or reorganization.

The Chapter 7 Option—Liquidation

In a Chapter 7 proceeding, an individual is entitled to have most debts permanently discharged in exchange for a willingness to sell all assets not exempt under state or federal laws. Corporations, limited liability companies and similar entities do not receive a discharge. They are not entitled to exempt and keep assets the way individuals are. They just get liquidated. But when a business fails or closes, the individual owners are often saddled with debts they cannot handle. More often than not, the business owners need personal bankruptcy after the business closes. In some cases, it may make sense to put the business into bankruptcy, to avoid continuing harassment by creditors or the liability that can arise from the owners’ continued involvement.

All these choices are matters you should discuss with a qualified business bankruptcy specialist. There is a way out but careful planning and the right advice are critical.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

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