. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

When people think of bankruptcy, they tend to imagine a personal bankruptcy in which an individual files for the purpose of managing their personal debts. While personal bankruptcies are the most common type of bankruptcy, they are not the only ones. Businesses and cities can also file for bankruptcy protection. When a business loses profitability and experiences problems paying its supplier debts, bankruptcy can be one way to help solve its financial problems.

Chapter 7 Business Bankruptcy

A Chapter 7 business case is similar to a Chapter 7 personal case. The idea behind filing a Chapter 7 business is to obtain complete debt elimination. Companies seeking total debt elimination are often deeply in debt and do not foresee a financial solution to return to profitability. Instead, its objective is to cease operations and resolve debt liabilities with creditors.

A Chapter 7 business is not the best position to be in, as the business is expected to no longer be able to continue operating. When operations cease, the remaining commercial assets are liquidated in order to satisfy the debts contracted with the creditors. Business debts include items such as funds remaining in the business, equipment, stocks or shares, and any remaining inventory. All of these items are sold and the proceeds will be divided among the creditors.

A Chapter 7 business can be fairly straightforward for small businesses or sole proprietorships. In businesses like these, the owners can easily give up their rights and stake in the business during the bankruptcy process. Chapter 7 business cases become more complicated for large companies, or those with multiple owners, as stopping operations can be a lengthy process.

Chapter 11 bankruptcy

A Chapter 11 bankruptcy is similar to a Chapter 13 personal bankruptcy, in that the main focus is developing a debt repayment plan while maintaining assets. Companies entering Chapter 11 seek to reorganize their finances and resolve some of their debt burdens with creditors. The idea is to restructure the company to ease financial pressure and return to profitability. Businesses rarely go out of business in a Chapter 11 case.

Most companies will try to file a Chapter 11 whenever possible. After all, no company would prefer to go out of business unless it is absolutely necessary. A business that files for Chapter 11 has a better chance of keeping assets throughout the bankruptcy process. Generally, the debt restructuring plan will include concessions to give creditors the first opportunity to make future profits or increase the creditor’s equity interest. Assets are rarely liquidated in a Chapter 11 case, unless a third party takes over the property during the process.

Chapter 11 cases are common among large businesses, corporations, or franchises. Many sports teams have resolved their debts through Chapter 11, whereby they sold the property to a third party in exchange for alleviating some of the burden of their debts. A Chapter 11 case is best designed to manage the debts and assets of large companies in which multiple owners and shareholders are involved in business operations.

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