Businesses and individuals can find themselves facing economic hardships for many reasons – economic downturns, competition from online or “big box” retailers or even shifts in consumer tastes and preferences. With creditors on the doorstep and threats of legal action, businesses and individuals can seek some relief by filing bankruptcy.
Filing for bankruptcy essentially gives debtors (the business or individual) time and space to figure out a way forward. Immediate relief comes in the form of an automatic stay of pending legal actions, including foreclosures and collection actions. Depending on the type of bankruptcy action, filing is an opportunity for businesses to restructure their balance sheets and reorganize, or possibly liquidate its assets to satisfy creditors. Bankruptcy reduces debt or even discharges it and provides relief from unfavorable contracts.
Businesses and individuals looking for a fresh start have three main options:
- Chapter 7 – Allows certain individuals and businesses to “liquidate,” or sell-off their assets to satisfy creditors.
- Chapter 11–Primarily as a mechanism for businesses to reorganize. Some individuals may qualify for Chapter 11 as well.
- Chapter 13– Known as “personal bankruptcy” individuals with a certain amount of debt and a regular income can seek relief under this chapter.
There are other chapters under the bankruptcy code that apply in special circumstances, such as family farmers and fishermen (Chapter 12) and municipalities (Chapter 9).
Bankruptcy Packages Are Available