Bankruptcy in California
Small businesses have every intention of becoming long-term successes with profitability. However, starting a small business is an arduous task. According to data from the Bureau of Labor Statistics, approximately 20 percent of small businesses fail within the first year. It can be likely that owners will be in a situation where they have to claim bankruptcy in order to save their business. Because bankruptcy can be quite complicated, it is prudent to consult an attorney in order to make sure the financial future of your business is secure.
Chapters of the US Code
Small businesses can file for bankruptcy using three different chapters of the US Code: Chapter 1, 11, or 13. Each code has their own rules, provisions, and ultimately outcomes for the filer.
-Chapter 7: A Chapter 7 filing requires a corporation or limited liability company (LLC) to stop all business operations. Once business is ceased, a trustee will then sell off the business assets and pay back creditors. Chapter 7 bankruptcies do not erase any business debt and creditors can still sue an individual of the business.
-Chapter 11: If a business files a Chapter 11 bankruptcy, they can still continue to operate. If approved by both creditors and the court, a business can create a repayment plan under a Chapter 11 bankruptcy. In order for this to happen, the debtor in control has to answer any and all questions by the creditors and consult with them in order to create a plan to reorganize or liquidate all assets.
-Chapter 13: Under a Chapter 13 bankruptcy, a business maintains possession of the property, but a trustee is appointed. A business can keep operating, but all debts must be paid off based on a repayment plan that is negotiated. Payments are made to the trustee and then the trustee will deal with the creditors. The plan is made by the code and then approved by the court.