An Overview of Corporate Bankruptcy Filing: How Does It Work?

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Filing for Bankruptcy as a Business

Filing for bankruptcy can be a way for businesses to overcome certain financial challenges. When a business files for bankruptcy, they are immediately protected from creditor harassment, allowing them the time and space they need to restructure the business’ finances and build a more secure financial future and/or to help investors and stockholders recoup some of the money they put into the company, even if the company ultimately goes out of business.

During this time, debtors may liquidate some of their assets to pay creditors or work out arrangements such as payment plans or reduced amounts owed. Bankruptcy also provides an automatic stay that prevents creditors from seeking collections during the proceedings. Ultimately, filing for bankruptcy allows businesses to reset their debts and get back on solid financial footing.

Two types of bankruptcy filings are generally available to corporations and businesses: Chapter 7 and Chapter 11. Keep reading to learn more about these processes and other important things a company considering bankruptcy should consider.

Chapter 7 Bankruptcy for Businesses

Chapter 7 bankruptcy is a liquidation process for companies, after which the company completely disbands and is no longer in business. During this process, all the business's assets are sold off to pay back creditors and investors. While the goal is to return as much money as possible, not everyone is guaranteed to receive the full amount owed to them, or to receive any money at all.

The procedure involves filing paperwork with the court to open the case and declaring any debts that must be paid. Afterward, a trustee will assess the business's records and take possession of the assets to manage the liquidation process and repay creditors. Finally, after all debts have been settled, a discharge order is given to free the debtor from any further responsibility for those liabilities.

Chapter 11 Bankruptcy for Businesses

Often referred to as reorganization bankruptcy, Chapter 11 is ideal for businesses looking to restructure their debts and finances instead of liquidating them. This process involves a debtor presenting a reorganization plan to the court, which details how the business plans to pay off creditors and become solvent again. The court then assesses the plan and decides whether or not it is in the best interest of creditors.

During Chapter 11, debtors are allowed to continue operating while they work with a committee assigned to represent investor and shareholder interests. This committee works to create a plan that will get the company out of debt, reshaping it into a profitable entity. In some cases, shareholders will have a say in the reorganization plan, but not always. If the restructuring plan is approved, the court will enter an order approving the reorganization plan and allowing debtors to move forward with repaying creditors over time.

Note: Chapter 11 bankruptcy filings are incredibly complex, and some consider it the most challenging bankruptcy process to go through. With this in mind, it is always recommended that you work with an experienced corporate bankruptcy attorney (like our team at Financial Relief Law Center).

The Importance of Pre-Bankruptcy Planning

Pre-bankruptcy planning is essential for businesses and corporations looking to protect their assets in the event of a bankruptcy filing. A corporate consulting and bankruptcy attorney, like ours at Financial Relief Law Center, can provide valuable guidance to help businesses prepare for a potential bankruptcy filing by reviewing financial statements, assessing debt obligations, and advising on restructuring options.

They can also aid with drafting important documents like reorganization plans and disclosure statements to ensure that all legal requirements are met before the courts evaluate submissions. Additionally, a lawyer can provide representation before the court during those proceedings.

Is Now the Right Time to File for Bankruptcy?

Knowing if now is the right time to file for corporate bankruptcy can be difficult to determine. Financial Relief Law Center attorneys have extensive experience providing corporate consulting services and managing corporate bankruptcy filings. We can help you and your team make this important determination. Additionally, we are available to give guidance on practical issues like timing, procedural rules, and strategies for maximizing the value of your assets. Further, our attorneys are prepared to represent clients before the court during any bankruptcy litigation proceedings.

Do you have questions about corporate bankruptcy? You don’t have to go through this alone. Reach out to our team online to schedule a consultation.

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