Chapter 13 Business Bankruptcy

With the economic scenario still a long way behind the desired levels, the numbers of companies that fail to make it through the rough times are showing a steep climb. Be it a sole proprietorship, or a partnership firm or a corporate, financial crunch forces the business entities to seek relief through filing for bankruptcy. Depending on the type of entity the relief may take the shape of liquidation or reorganization.

In a sole proprietorship concern with the owner being responsible for all assets and liabilities incurring in the firm, it can file for Chapter 7, Chapter 11, or Chapter 13. Corporates and the partnerships, on the other hand, being legal entities separate from their owners, can only file for Chapter 7 or Chapter 11.

Where the business still holds a potential for survival and growth, then it is a plausible solution to seek respite through Chapter 11 wherein the entity works to reorganize itself to meet the amount outstanding to the creditors. If the plan meets the approval of the creditors and the Court considers it to be viable, then the entity can proceed with the same. Typically the payment program may extend to over twenty years under Chapter 11.

Under Chapter 13 bankruptcy a sole proprietorship can submit its payment proposal based on the income and expenses and the property held by it. Where the personal assets of the owner are in jeopardy, it is always wiser to go for Chapter 13 bankruptcy if it is feasible rather than Chapter 7 bankruptcy.

Chapter 7 is resorted by business concerns where the best option is to close down the entity. Under Chapter 7 the business requests for the liquidation of the entity. The Court on approval will entrust the task of selling of the assets and distributing the revenue so generated to the trustees. Once done, the business gets ‘discharged” of the debts making it free from the obligations.