North Carolina companies that are looking for debt relief may choose to file for either Chapter 7 or Chapter 11 bankruptcy. Those that seek Chapter 7 relief generally have most of their assets liquidated by the trustee and then cease operations. Businesses that file under Chapter 11 reorganize their debts in an effort to put themselves on stronger financial footing.
What happens when a business files for Chapter 7 protection?
When a company files for a liquidation bankruptcy, it sells any asset that may be of value under the guidance of a trustee. This could include unsold inventory, heavy equipment or any trademarks that it owns. Any money that is raised goes toward paying creditors what they are owed, and remaining balances may be discharged. Typically, lease agreements between a company and its landlords are terminated in a Chapter 7 proceeding.
What happens when a company seeks Chapter 11 protection?
Corporate entities that file for Chapter 11 bankruptcy protection submit a debt reorganization plan to the court hearing the case. Creditors have the option to approve the plan, deny it, or recommend that the case be converted to a Chapter 7 proceeding. If you own a company that is going through a reorganization, your personal assets are unlikely to be at risk of being repossessed or liquidated.
How often are Chapter 11 cases filed?
In 2018, only 1% of the 773,000 bankruptcy cases filed in the United States were Chapter 11 filings. This includes both personal and corporate entities that sought protection from their creditors. While corporate reorganization cases are statistically uncommon, they can be an effective way for a struggling company to succeed. Marvel was able to successfully emerge from bankruptcy in 1996.
Filing under either Chapter 7 or Chapter 11 may make it easier to help your company deal with its financial situation. An attorney may be able to help you determine which type of protection best meets your company’s needs.