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Chapter 7 vs. Chapter 11 Bankruptcy




  • For businesses, Bankruptcy occurs when liabilities exceed assets and the business does not have enough funds to maintain credit payments. When a business is in this situation it has two choices, chapter 11 or chapter 7 bankruptcy.

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    Chapter 11 usually happens when a firm seeks protection from from itís creditors while it attempts to formulate a plan to remain in business. The creditors are only being held at bay by the courts for a period of time that will allow the firm to put the revised business plan and payment schedules into the planning stages. The majority of the creditors must then approve the plan before it is put into place.

    While in Chapter 11, the majority of the Creditors and any new vendors will place the firm on a C.O.D. payment plan. This can prove to make operating, very difficult.

    Chapter 7 is the least savory of the bankruptcy choices. Chapter 7 requires a complete liquidation of all of the assets for repayment to the creditors. In mosty cases the assets do not equal the amount owed to creditors, forcing the creditors to accept pennies on the dollar.


     
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