When an insolvent business must cease operating, bankruptcy is often part of the dissolution process. Successful bankruptcy proceedings can eliminate debts that might lead to litigation or even claims against the owner of the business.
Frequently, those planning to cease business operations pursue Chapter 7 bankruptcy. They liquidate assets as necessary and discharge eligible debts. However, those with valuable business assets may determine that a Chapter 11 bankruptcy is a better option when planning to wind down business operations.
How Chapter 11 bankruptcy helps
In a Chapter 7 bankruptcy, expediency is built into the process. Filers provide information about assets and debts to the courts. The trustee oversees asset liquidation and distributions to creditors before the discharge, which may only require a few months of waiting. The need to liquidate assets rapidly may lead to trustees accepting less than the optimal value for assets worth tens of thousands of dollars or more.
In a Chapter 11 bankruptcy filed with the intention of winding down operations, businesses have more control over the asset liquidation process. They can potentially secure better prices for critical resources, such as machinery, vehicles and real estate owned by the business. Securing a better sale price for key assets can result in the repayment of more debts, including obligations to employees and investors who took a risk on the company previously.
For those who want to control the wind-down process and reduce the losses suffered by creditors, Chapter 11 bankruptcy can be a viable alternative to traditional Chapter 7 procedures when preparing to end operations. Working with an experienced business bankruptcy attorney can help those who own and run businesses choose the right form of bankruptcy and maximize the benefits derived by filing.