Business Bankruptcy: What it Involves and How it Impacts Your Company's Future

Bankruptcy. Though it's usually something we tend to associate with personal finance and large enterprises, business bankruptcy can have a strong impact on your business. However, knowing what the different types of business bankruptcy and how they differ helps you understand what it means when another business or even your own business is facing financial trouble. Here's a quick overview to help you get started.

Bankruptcy is often undertaken for a wide range of reasons, but typically involve serious financial issues for the company as a whole. Generally speaking, business bankruptcy typically involves hiring a lawyer to help you through the legal part of the process. However, declaring bankruptcy doesn't necessarily mean the end of your business. Here is a look at the three types of bankruptcy available to businesses.

Chapter 7: Liquidation

Typically used by sole proprietors and small businesses, Chapter 7 bankruptcy is used when there's no hope of keeping the business operational. In this type of bankruptcy, a trustee is appointed to oversee the sale of the business' assets to pay off debts. After the bankruptcy is completed, all remaining debts are discharged as there is no longer a business to pay them.

Chapter 11: Reorganization

If a company can recover with a little time to get things under control, Chapter 11 bankruptcy is a common choice. In this case, a trustee is also appointed by the court system to oversee the business' operation, providing a high level of scrutiny to ensure the business' management is making the right decisions to recovery.

Chapter 13: Repayment

If you're a sole proprietor, your business debts are also your personal debts. An option available in this case is Chapter 13 bankruptcy. This allows you to provide a repayment plan to the court showing how you'll pay back both business and personal debts while retaining vital assets, such as your home.

By knowing how business bankruptcy works, you can more easily figure out the nuanced differences between different forms of business bankruptcy and how it can impact the company's financial future. If you need help figuring out your company's finances, AccountRely can help. Please feel free to contact one of our experienced accounting professionals today and see what options the future holds for your business.