We need to change the way we look at bankruptcy. Some people imagine it to be a signal that it’s the end of your business. After declaring bankruptcy, everything gets taken out of your office, and the doors close permanently. 

Shift perspective. Maybe it could be a way to move forward. And it certainly doesn’t mean your business is over. Apple almost declared bankruptcy in 1997. Chrysler and General Motors did file, yet all three businesses are still operating. 

If this is something you or your business is considering, you need to know the different types of bankruptcy. Understanding what reorganization and liquidation mean is important before going any further.

The Different Types

Chapter 11 is what most people associate with bankruptcy. But if you are considering liquidation or reorganization, you will either be filing for Chapter 7, 11, 12, or 13. Here’s what they mean:

• Chapter 7: Liquidation
• Chapter 11: Reorganization for businesses
• Chapter 12: Reorganization for farmers and fishermen
• Chapter 13: Reorganization for individuals 

After seeing that list, as a business, you will either pursue Chapter 7 or 13. And the key difference between the two is liquidation and reorganization.

Liquidation 

The basis of bankruptcy is that you have creditors that you cannot repay. The purpose of both liquidation and reorganization is for you to have another way of getting money into the hands of the people that loaned it to you. 

With liquidation, your stuff will be sold. The money that is generated from this goes to your creditors. Your property will go to a bankruptcy court, and a trustee will be appointed to manage everything. Here’s an important detail: the more the trustee gets for the creditors, the more money they earn. This person has a financial interest in turning over your assets to your creditors.

Reorganization

Unlike Chapter 7, Chapter 11 can offer a business a fresh start. Before you rush to this option, know that it is complex, costly, and long. When we talked about companies who filed for bankruptcy and continued, this is how they did it. 

Another key to Chapter 11 is based on your creditors’ needs and not your own. If your business is filing Chapter 11, you can suggest how your business is reorganized. But the court will have to approve it. This proposal has to meet the needs of your creditors before your own.

It is also possible to keep running your business during this process. An exception to this is if you are accused of negligence or fraud. That’s when a trustee will be appointed by the court to run your business. During this time, a large portion of your financial decisions need to be approved by the court. And you cannot take on any additional loans. 

Hedtke Law Group

The majority of us take on debt. And due to how quickly our lives can change, becoming overwhelmed financially is a very real possibility. Hedtke Law Group is here to support and help people like you during this time. We want to assist you in discovering your fresh start. Contact us through our website to get a free case evaluation.