Small business owners in Oklahoma should all be knowledgeable about the way bankruptcy works. Bankruptcy is a topic that makes people nervous, and that’s understandable. However, it’s a good idea to have some awareness of how business bankruptcy works and the types available to business owners.
Bankruptcy for beginners
Bankruptcies are always handled by the federal court system. The different types of bankruptcy are referred to by where they appear in the Federal Bankruptcy Code. When it comes to business bankruptcies, Chapter 7 and Chapter 13 are the two most common types. In Chapter 7, businesses liquidate. In Chapter 13, business owners adjust their debts.
Liquidation versus adjustment
When businesses liquidate, they sell off all of their assets in an attempt to meet their obligations. The money that proceeds from sales is put toward the bills that the business hasn’t paid. Usually, the money from sales is not enough to cover all of the debts incurred by the business, but since there’s nothing of value left, creditors can’t keep pursuing the debts. Chapter 7 is what most laypeople probably associate with business bankruptcy. It’s not always the only option, though.
In Chapter 13 bankruptcy, a business restructures. Owners reduce debts and make a plan to pay them down over time. Technically, in Chapter 13, the individual who owns the business is the one filing for bankruptcy with the court. A larger corporation doesn’t have the option to file this way.
Business owners facing bankruptcy may want to contact an experienced attorney. Having an advocate to help them communicate with the court is key. A bankruptcy lawyer may help their clients find the right pathway to debt relief for them.