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What Happens When a Business Goes Bankrupt?

News & Blog 2019 September What Happens When a Business Goes Bankrupt?
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What Happens When a Business Goes Bankrupt?

Posted By Allen Semelsberger Kaelin, LLP || 16-Sep-2019

A business becomes bankrupt when it can no longer repay outstanding debts, but filing for bankruptcy shouldn’t have to mean failure for you or your business. Even giant companies like Forever 21 face the threat of bankruptcy. When exploring this option, there are a couple ways you can go.

Chapter 11 Bankruptcy

If you are struggling to turn a profit with your business, and therefore failing to pay creditors back, you may want to consider filing a Chapter 11 bankruptcy. This type of bankruptcy gives you an opportunity to sell assets in exchange for cash, use that money to pay-off debtors, and “reorganize your business.”

For example, Forever 21 filed bankruptcy and held nationwide 70% off sales to get back on their feet. They also closed more than 7,000 stores and encouraged customers to shop online. Assuming the company is able to pay its debts, the business has every chance of recovering and regaining its former success.

Chapter 7 Bankruptcy

In a Chapter 7 bankruptcy, debtors must still liquidate their assets, but they are not in charge of this process. Instead, a trustee is appointed and their company goes completely out of business. There is no way to resolve this kind of bankruptcy. Everything associated with the business will be sold to pay creditors. While this is the end of your business, you are allowed to keep any individual income you make after filing, and your home, clothing, furniture, and vehicle should be exempt from liquidation. You may not have a business anymore, but you and your family will have the opportunity to start from scratch.

What if My Business Partner Goes Bankrupt?

If you started a business with another person and they are no longer able to fulfill their financial commitment, the business will automatically be dissolved. This is similar to bankruptcy, but you won’t have to file for anything except the dissolution of the business. Additionally, you can use whatever assets are left after winding up to form a new partnership.

Preserving Your Business

Countless factors can drive a business towards bankruptcy, but in most cases, there’s still a chance to persevere. If you need help with business disputes, agreements and contracts, or anything else in the field of business law, our team at Allen, Semelsberger & Kaelin LLP can help. With the right attorney, your business can go from the brink of bankruptcy to the height of success. Don’t go through it alone; call (888) 998-2031 and request a free consultation.

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