Bankruptcy For Businesses

Businesses file under Chapter 11 of the Bankruptcy Reform Act of 1978.

Having to file for bankruptcy seems to be an entrepreneur’s worst nightmare of a good business idea gone bad. However, even previously successful businesses have had to shut down or file for bankruptcy in past years. This will remain true of most businesses in the world’s ever fluctuating economic market. Even businesses that have been stable for years cannot always depend on a steady financial future. That is why some businesses do have to face up to filing for bankruptcy. A business that files for bankruptcy must follow a different procedure than that for an individual.

The Previous Chapters

When businesses must file for bankruptcy, they now file under Chapter 11 of the Bankruptcy Reform Act of 1978. However, this was not always the case. In previous years, when businesses had to file for bankruptcy, they had to file their case under a certain chapter. This chapter would pertain to that particular type of business, and there were three chapters in total under which a business could file for bankruptcy.

Before chapter 11 was passed under the Bankruptcy Reform Act, companies that were considered big businesses generally filed for bankruptcy under chapter 10. These companies also held public debt and had equity. Companies that were smaller and did not hold any public debt would file for bankruptcy under chapter 11. Finally, companies that had extensive holdings of properties would file for bankruptcy under chapter 12. Of course, the chapters were consolidated into one during later years and are now just referred to as chapter 11 under the new Act. This somewhat simplifies the process for businesses that have to file for bankruptcy.

Certainly, filing for bankruptcy is not the goal of any business. Yet, some businesses have been able to bounce back from hard economic times and have been able to turn a profit once again. Although the changing economy can make running a successful and stable business difficult, it can be done. Bankruptcy is an option to consider, however, for businesses that are in debt. In some cases, a period of relief from debts could potentially allow a business to make a fresh start and to begin rebuilding their credit.
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