Should my Company File Chapter 7 or 11?

While most bankruptcy filings in the US are individuals or married couples, plenty of businesses are also faced with staggering debt and turn to bankruptcy for relief. Businesses must decide if a Chapter 7 or Chapter 11 will be most beneficial not only to their bottom line, but to the economy and community as a whole. If a company files a Chapter 7, the business is essentially dissolved, and all of their assets are sold to repay creditors. There is more flexibility with a Chapter 11, and companies can usually continue to operate while they negotiate with their creditors about how to handle assets and debts.

Pros and Cons

But what does this mean for employees and the economy? If a business files Chapter 7 and closes its doors, employees are obviously out of work. Depending on the location and type of business, a buyer could come in and reopen, which provides jobs and stimulates the economy. A new, different type of business that’s better suited to the community and current market could also open up in its place. However, if the business site sits unoccupied, that’s not beneficial to anyone. The building could fall into disrepair, affecting the entire feel of the community. This could affect neighboring businesses and home values as well.

When a company files a Chapter 11, they may or may not become a profitable business. Some companies get back on their feet, make the necessary changes, and continue on. But the truth is, many companies that file Chapter 11 end up closing their doors eventually. One of the largest benefits of choosing a Chapter 11 is that it gives the company the necessary time to find a new buyer for the company or the landlord time to find a new business tenant. This leads to steadier employment and a smaller chance that a building will sit unoccupied.  

The court trustee does have a say whether a business can file a Chapter 7 or 11. They will often use information about other local businesses and the current demand for a particular type of business. In general, it appears that a Chapter 11 is most beneficial to everyone involved, but some situations simply call for a Chapter 7. This frees up the business owner to move on to a new project or other employment.

Handling Debt

Whether you’re in personal debt due to credit cards and medical bills, or if your business is failing to be profitable, the best course of action is to do everything you can to avoid bankruptcy. Business owners may be able to negotiate with their creditors, change their business model, or make other changes to turn things around. However, bankruptcy may be inevitable, and if that’s the case, it’s best to take action to make a new start. No matter your debt or circumstances, I’m here to help you get a handle on your finances and leave your stress behind.