What Is Business Bankruptcy?

A business that cannot pay its bills might want to consider bankruptcy. The U.S. Bankruptcy Code has special laws covering businesses. A judge immediately appoints a trustee to run a business' finances during bankruptcy and bill collectors are prevented from demanding payment.

Bankruptcy can completely eliminate a company's debt. It can also give a business a chance to reorganize and get back on its feet. Easier bankruptcy proceedings exist for farming and fishing businesses. Special laws also allow U.S. and foreign bankruptcy courts to work together when an international business files bankruptcy.

Chapter 7 Business Bankruptcy Cancels Debts

Chapter 7 is a form of bankruptcy that completely cancels most business debts. Under Chapter 7, a business must sell its assets and pay as many of its bills as possible. Bankruptcy law requires that bill collectors be paid in a certain order.

If there is not enough money to pay them all, the judge can cancel the bills that are left. Chapter 7 is a popular choice for businesses that cannot pay their creditors and want to close down.

Chapter 11 Business Bankruptcy Allows Reorganization

Chapter 11 bankruptcy is for businesses that are in financial trouble but do want to close down altogether. A reorganization plan must be approved by a judge.

Some bills may be canceled and others may be paid late or reduced until the business has a chance to restructure. The goal of chapter 11 is to give a business a breather from bill collectors so it can create a better company.

Farmers and Fishermen File Special Chapter 12 Bankruptcy

Chapter 12 recognizes that farmers and fishermen face special challenges, like bad weather and swings in food prices. Chapter 12 bankruptcy makes it cheaper and easier for most farmers and fishermen to file bankruptcy.

Their bills can be reduced, and they can be given 3-5 years to repay them. A judge can cancel certain left-over balances. Once a judge approves a repayment plant, bill collectors cannot object.

Foreign Businesses Have Special Bankruptcy Rules

Chapter 15 bankruptcy makes international business bankruptcies easier. It allows a U.S. bankruptcy judge to honor a foreign bankruptcy judge's decisions. This is helpful for foreign companies doing business in the United States.

A U.S. judge enters an order honoring the foreign bankruptcy, and this stops bill collectors in the United States from collecting from a foreign company.

A Business Bankruptcy Lawyer Can Help

Business bankruptcy laws can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.

Have a business bankruptcy question?
Get answers from local attorneys.
It's free and easy.
Ask a Lawyer

Get Professional Help

Find a Business Bankruptcy lawyer
Practice Area:
Zip Code:
How It Works
  1. Briefly tell us about your case
  2. Provide your contact information
  3. Connect with local attorneys
This article was verified by:
David G. Hicks | June 03, 2015
11717 Burt Street Suite 106
(402) 401-4916 View Profile

Talk to an attorney

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you