multi national company-california, new jersey, texas, new york, illinois
2 replies
May 19, 2020
There are two main forms of bankruptcy for businesses, Chapter 7 and Chapter 11. So named for where they are located in the US Bankruptcy Code. Here's a quick breakdown of each type.
Chapter 7 bankruptcy is the more severe of the two, which is why it's referred to as "liquidation bankruptcy." When a company files Chapter 7, that means the company's financial losses are past the point of no return. Filing Chapter 7 is considered the final step in closing out a business. There is no reorganization or restructuring. After filing, creditors will be subject to automatic stay as the company is forced to sell practically every asset (besides those that are exempt) to pay off their creditors.
On the other hand, there is Chapter 11 bankruptcy, also known as "rehabilitation or restructure bankruptcy" This type of bankruptcy proceeding allows the company to a chance to reorganize its debts and attempt to resume business activities in the black. This type of bankruptcy is typically used by larger companies to stay in business while repaying their creditors. Under Chapter 11, the company will contact creditors and attempt to negotiate to reduce interest rates and/or set up a revised payment plan.