Bankruptcy can be a scary prospect for any business owner, especially for small businesses. If you are an entrepreneur considering bankruptcy, it is important to understand the different kinds of bankruptcy and how each may affect your business. Depending on what your goals are, there are various avenues you may choose to pursue at this time. To get started in pursuing bankruptcy, contact an experienced lawyer. This crucial first step will ensure you have the guidance necessary to make informed decisions.
Types of Small Business Bankruptcy
In North Carolina, small businesses pursuing bankruptcy usually file under Chapter 7 or Chapter 11 of the bankruptcy code. Chapter 7 involves liquidating the business assets to repay creditors, while Chapter 11 bankruptcy allows the business to reorganize and continue operating while repaying debts over time. Choosing the appropriate bankruptcy chapter depends on the business’s financial situation, goals, and long-term viability.
The Automatic Stay and Debt Discharge
Upon filing for bankruptcy, an automatic stay goes into effect, which halts all collection efforts by creditors. This provides temporary relief for the business and allows for the development of a repayment plan. In Chapter 7 bankruptcy, the business’s debts may be discharged, relieving the company of its obligations. In Chapter 11 bankruptcy, the business proposes a repayment plan to creditors, which, if approved, allows for the restructuring of debts and continued operations.
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