Although filing for business bankruptcy is never something to aspire for, it can be necessary for some companies, especially small businesses. In order to better protect a company, it’s recommended that owners work closely with a Houston business bankruptcy attorney to file bankruptcy in a manner that will best benefit a business. This can mean filing for bankruptcy that will either end the business or breathe life into it, depending on the company’s specific needs.

What Is Business Bankruptcy?

A company may choose to declare business bankruptcy to assist with repaying or eliminating their debt under the protection of a bankruptcy court. There are two main types of bankruptcy a business can file for:

1. Chapter 7 for Partnerships and Corporations

2. Chapter 11 for Partnerships and Corporations

Which type of bankruptcy a company chooses to file should be closely connected with the future vision they have for their business. Filing Chapter 7 generally signals the end of the line for a business whereas filing Chapter 11 can provide a second chance for a company to turn things around.

Chapter 7 Business Bankruptcy

Chapter 7 bankruptcy is applicable for partnerships and corporations that usually are not expected to overcome the staggering debt they have incurred. For this reason, the focus of Chapter 7 bankruptcy is typically liquidation as it allows a bankruptcy trustee alleviate debt by selling a company’s assets.

It is critical to recognize that filing Chapter 7 bankruptcy for your company may also involve:

  • Liquidation of assets to pay off debts
  • A complete stop of operations
  • Company closing
  • Transfer of ownership rights
  • Termination of shareholder positions

Another consideration to filing Chapter 7 business bankruptcy is that it does not always cover all debt a company has incurred. For example, the following kinds of debt may make a company ineligible to file Chapter 7:

  • Debt related to a company’s negligence
  • Taxes
  • Financial fraud

In addition, to file for Chapter 7 the requestor is required to pass a Means Test Calculation. This formula is designed to help the government establish if a debtor has income below that of the state median.

Chapter 11 Business Bankruptcy

A company filing for Chapter 11 business bankruptcy is generally in a better position to overcome debt than its counterparts who chose to file for Chapter 7. Some of the main reasons a business may choose to file Chapter 11 could be:

  • Renegotiating with creditors
  • Being freed from contracts or leases
  • Halting a foreclosure or repossession

Chapter 11 is commonly referred to as reorganization bankruptcy as it allows a company to come up with a reorganization repayment for its obligations and debts. The plan should be attractive to creditors if it is expected to succeed.

If the business does not create a reorganization program, a creditor may do so instead. This is not usually an optimal situation for companies, so it is advised that they come up with a valid plan before a creditor does.

Unlike those businesses who file under Chapter 7, most Chapter 11 companies may still remain open and operating during the process. However, it will likely not be business as usual as some decisions must have a stamp of approval from the bankruptcy court first. These decisions may include:

  • Expansion or termination of operations
  • Selling of assets
  • Initiating or terminating a rental agreement
  • Contracting with vendors

These decisions must be court approved for the duration of a Chapter 11 business bankruptcy case. Unfortunately, there is no set amount of time that a case can last. While some may take more or less time, on average most Chapter 11 bankruptcy cases can take from six months to two years to resolve.

It is worth acknowledging a risk associated with Chapter 11. If a company presents a repayment plan that is rejected by a lender, it may be possible for a lender to convert the bankruptcy filing to Chapter 7 and take control of a company’s assets, property, and stock.

How To Find A Houston Business Bankruptcy Attorney For Representation

If your company is considering bankruptcy, the first order of business should be to consult with a reputable Houston business bankruptcy attorney. These individuals deal with bankruptcy on a daily basis and have a variety of experience to pull from.

Some considerations when looking for the right Houston business bankruptcy attorney for you should be:

  • Know what your company’s current financial situation is as well as its future goals
  • Look for a reputable attorney over an individual who promises an overnight solution to your financial problems
  • Choose a lawyer with adequate credentials
  • Select representation that understands both Chapter 7 and Chapter 11 business bankruptcies and can also note when there may be another option
  • Verify all applicable court and representation fees up front

Business bankruptcy can be challenging to walk through, but armed with the knowledge of the difference between Chapter 7 and Chapter 11 bankruptcy as well as reputable Houston business bankruptcy attorney, it is possible to do what is best for your company and do it right.