There are three kinds of bankruptcy that businesses can file for, depending on their nature. Sole proprietors, partnerships, and corporations all have different types of filing. A sole proprietor is probably the easiest to file for. All you need is a signature, a bank account, and most importantly, one or more employees. Sole proprietor filings are processed quickly because there is no corporate shield, and no assets are protected from bankruptcy.
Another common option for sole proprietors is a business reorganization bankruptcy. Unlike sole proprietorships, business reorganization bankruptcy is created by a court order. A business reorganization bankruptcy is similar to a chapter 13 bankruptcy. A reorganization business has limited assets, such as accounts receivable, unsecured promissory notes, and trade lines. They do not have any corporate shield and are not protected from bankruptcy laws.
Chapter 13 is also known as liquidation. When a creditor takes the steps needed to sell off assets to pay off debts, the assets are dispersed to pay the debts. The distribution is usually done through an auction and can be done in installments or all at once. The auction starts at the current market price and decreases over time, depending on the value of each asset being sold. One of the major issues with liquidation is that the debts remain unpaid after it is done unless a series of scheduled payments are made.
Another option for liquidation is chapter 11 bankruptcy. Chapter 11 requires that all creditors are paid in full, and all assets are sold. This is usually the last resort for financially distressed companies and individuals.
A person or company who has filed chapter 7 bankruptcy will still have a good credit score. This can help them rebuild their credit rating. After receiving a discharge, the person or company will be able to file again in the future without having to seek another bankruptcy filing.
There are two types of reorganization bankruptcy: debt liquidation and wage earner reorganization. Debt liquidation is the simplest form and is what many of us think of when we hear the word bankruptcy. Wage-earner reorganization is a bit more complex and could require the input of a certified bankruptcy lawyer or CPA. Both have significant benefits and should be discussed with your attorney before any decision is made. There are many resources available to learn more about the different chapters of bankruptcy.
This post was written by Trey Wright, one of the best bankruptcy lawyers in Tallahassee FL! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, which specializes in areas related to bankruptcy law, estate planning, and business litigation.
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