If your business is suffering, you may be considering filing for bankruptcy. While business bankruptcy and personal bankruptcy both serve as a way of reducing, restructuring, or eliminating debt to make it easier to become financially stable, the two processes are slightly different. Here are a few of the key differences between personal and business bankruptcy.
There Is No Chapter 13 Option for Businesses
As an individual, you can consider filing for Chapter 13 bankruptcy. This option is for those who do have money coming in but simply have too much debt. The court will consolidate that debt into a repayment plan, allowing you to improve your finances without fully defaulting on your debts. As a business, however, this is not an option.
Chapter 11 Bankruptcy
However, a business can file for Chapter 11 bankruptcy. This option allows the company to either sell off their assets or reorganize. Most often, companies first attempt to reorganize the business. This is similar to personal Chapter 13 bankruptcy in that the company restructures its debt, its assets, and sometimes even how it operates. This is a complex form of bankruptcy, but it can result in the company coming out of bankruptcy in a much better financial position.
Individuals can file for Chapter 11, but because of its complexity and costs, it’s rarely a better option than Chapter 7 or Chapter 13.
Chapter 7
Businesses can file for Chapter 7 bankruptcy. However, the outcome for a business filing Chapter 7 is always the dissolution of the business. There is no reorganization option, which often makes it something of a last resort for business owners.
The Means Test
The Means Test is the formulate used to determine which of the bankruptcy types (usually Chapter 7 or Chapter 13) an individual is eligible for. A business does not have to meet any sort of Means Test to file for Chapter 11 bankruptcy.
Canceling Contracts
A business has the option to cancel contracts if both the business and the creditor they are contracted with agree to it. At times, doing so can actually benefit both the company and the creditor. Individuals, on the other hand, do not have the option of canceling debt that is exempt from bankruptcy, such as student loan debt.
Need Help with Bankruptcy?
If you need help with bankruptcy, we’re here to help. Contact the office of Michael F. Kanzer & Associates today to discuss your needs.