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LegalCornerTM - Business Bankruptcy - Chapter 7 or 11 F.A.Q.'s

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Q.Is Chapter 7 or Chapter 11 better for my Business?

A.To determine whether a Chapter 7 Liquidation or Chapter 11 Reorganization should be filed, the owners of a business must first determine what caused the present problems faced by the business. Reorganization can't create a market; increase gross revenue, or make up for an impossible labor market. If this is what caused the bankruptcy, then a chapter 7 may be appropriate.

However, if servicing old debt or disadvantageous leases brought the company to its current financial predicament, then a Chapter 11 Reorganization may be approrpriate. In a Chapter 11 Reorganization, monies can be freed up from servicing old debt and bad leases/contracts can be cancelled.

In between the Chapter 7 liquidation and the Chapter 11 reorganization, is a Chapter 11 liquidation, which may provide a business with sufficient breathing room to sell the business, or its assets, in something other than a fire sale. The resulting proceeds could then be used to pay taxes and/or unpaid salaries. The bankruptcy could then be converted to a Chapter 7 or dismissed if bankruptcy protection is no longer needed. The court, however, will probably condition a dismissal on the payment of the sale proceeds, or a portiont thereof, to the creditors.

Copyright 1999-2018 Melissa C. Marsh. All Rights Reserved. All Information on this website is subject to a Disclaimer and Use Agreement. This information is provided as general information only and should not be construed as legal advice. We advise you to seek the advice of competent legal counsel to address your own specific questions, facts and circumstances.