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Business Bankruptcy

Business bankruptcy filings are occurring at an unprecedented rate. Last year, bankruptcy courts reported a whopping 50-percent increase in filings over the previous year., a worldwide provider of financial information, reports more than 18,000 businesses filed for bankruptcy protection during the first four months of 2008 alone. Unfortunately, the outlook is even gloomier for 2009.

Filing business bankruptcy requires the assistance of a qualified bankruptcy attorney. The new bankruptcy laws enacted in 2005 have made filing both personal and business bankruptcy nearly impossible. Known as the Bankruptcy Abuse Prevention and Consumer Protection Act, BAPCPA places numerous restrictions on financial constraints on business owners.

Failure to comply with BAPCPA rulings will cause bankruptcy filings to be dismissed. If a business owner attempts to file bankruptcy on their own they could be setting their company up for disaster. Misrepresentations to the court or lack of proper accounting practices can result in losing protection from the court or cause the business owner to face criminal prosecution.

Business bankruptcy is overseen by federal bankruptcy courts. Four chapters govern business bankruptcies including: Chapter 7, 11, 12 and 13.

Chapter 7 is known as "liquidation bankruptcy" and requires business owners to liquidate assets in order to repay creditors. Remaining debts are discharged through the court and the owner is no longer responsible for paying them.

BAPCPA requires debtors to repay a portion of their debts when possible, so obtaining Chapter 7 is not nearly as easy as it used to be. Instead, most business owners will be forced to file for Chapter 11, 12 or 13 bankruptcy protection.

Chapter 11 is used for partnerships and corporations. This type of business bankruptcy allows the company to reorganize debt through a repayment plan. Chapter 11 payments are made to a Trustee who then distributes payments to creditors until debts are paid in full.

Chapter 12 is reserved for farmers and family fishermen. It allows the business owners to repay all or part of their debts through installment plans paid over three to five years.

Chapter 13 bankruptcy is available for business owners registered as sole proprietors. These business owners must undergo credit counseling and submit a repayment plan to the court. Chapter 13 repayment plans typically last between three and five years.

If the debtor is unable to adhere to their repayment plan, creditors can petition the court seeking dismissal. A bankruptcy judge can either allow the business to file for Chapter 7 or dismiss the case. Dismissal is referred to as failing out of bankruptcy and causes the debtor to lose protection from the court.

Filing business bankruptcy is a costly and time-consuming event which should be considered only after all other options are exhausted. Before making a decision to file bankruptcy, take time to research bankruptcy alternatives to determine if this is the best course of action.

Our comprehensive business bankruptcy library contains dozens of articles on bankruptcy and alternatives. We invite you to peruse our content and discover what options are available to both businesses and individuals.

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Published on April 04, 2009 at 01:13 AM

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