Sunday, November 11, 2012

When Businesses File For Bankruptcy

The economy hasn't just been tough on consumers, but businesses are also having difficulties more than ever before to maintain profitability and keep their doors open. With so many sought after companies taking the plunge into bankruptcy, consumers are wondering just what this means for the fate of a business.

Business Bankruptcy Fundamentals

As with personal bankruptcy, businesses have two choices to fix their debts in bankruptcy. A Chapter 11 filing allows for debts to get reorganized and repaid through a combined payment plan, similar to those of a Chapter 13. A business Chapter 7 is a type of elimination bankruptcy in which assets are liquidated to satisfy financial obligations. Always consider other options such as pre pack administration, liquidation and insolvency. These techniques are very useful.

Chapter 11 cases tend to be the first line of financial defense for businesses that wish to stay in operation. By keeping this company in operation, businesses hope to be able to negotiate a debt resolution plan that fulfills creditors. In some cases, a business may liquidate some assets, sell off ownership shares, or even auction off the entire company in a sale in order to repay creditors. Generally, a Chapter 11 case keeps the majority of the business interests in tact while resolving debts. If the case is successful, the company can resolve its debt liabilities and regain profitability.

A business Chapter 7 case is sought for companies that have no chance of restoring future profitability or do not wish to remain in operation. The main source of debt satisfaction in such cases is asset liquidation, in which all remaining assets are sold to pay for debts to creditors. The company owners will give up their share within the company and ownership rights are terminated. When a company advertises they may be "going out of business", they might be pursuing a business Chapter 7.

From Reorganization To Liquidation

Although many big companies and major industry players made headlines in recent years for their bankruptcy filings, it doesn't necessary mean bad things. In fact , many of the high profile Chapter 11 cases have been involved with successful exits from bankruptcy, possibly leading to better business operations and improved consumer services.

But not all who enter Chapter 11 will prevail and some have wound up converting into business Chapter 7 cases instead. This is typically seen when a company was not able to negotiate a deal in Chapter 11 or unable to find additional sources of income or revenue as part of their filing. A lack of investors and limited opportunities for the partial sale of possession or resources has lead many companies from reorganization into liquidation.

For more information check out Finance7.

1 comment:

  1. Making it cheaper is also a good way of making business. You just have to sell more items to recovers from the cost incured in this kind of strategy.