How Can a Business File for Bankruptcy?
There are two ways a business can file for bankruptcy: Chapter 7 and Chapter 11. Once bankruptcy proceedings are started (whether through Chapter 7 or Chapter 11), creditors cannot attempt to collect debt from the business until the bankruptcy process has ended. Chapter 7 Bankruptcy Chapter 7 Bankruptcy involves the selling off (or “liquidation”) of a business’ property to pay off debts. The bankruptcy process starts when the business files a petition with the bankruptcy court. The petition must list all of the business’ property, debts, and recent financial history. The court will then appoint a trustee who will sell off some of the business’ property to help pay the business’ debts. Some debts will be discharged by the trustee, meaning that the debts will not have to be paid. Other debts are not dischargeable including recent taxes, debts in prior bankruptcy, and penalties payable to the government. After all the debts have been settled, the business will most likely cease to exist.
