Three Important Laws for Filing Bankruptcy

When your small business is experiencing financial trouble and the situation is worsening, it is better to file bankruptcy in time with your creditors aware of the fact of filing bankruptcy. Filing bankruptcy saves you from the future hassles and helps you to repay your creditors and also to get a fresh new start. But it is really essential to understand the laws involved in the declaration of bankruptcy by a small business owner.

For small businesses which are going through financial trouble, the bankruptcy can be filed and debt relief issues may be sorted out by the owner by personally filing bankruptcy under Chapter 7, Chapter 11 or Chapter 13 of the bankruptcy code.

Chapter 7 Bankruptcy
Chapter 7 is the most common form of filing bankruptcy. It involves total liquidation of the assets of the company in order to pay the debts owed to qualified lenders. It is allowed when the company has no future. To execute the chapter 7 bankruptcy, a trustee is appointed by the court to collect all the assets that have been designated as non-exempt by the court, sell them and distribute the proceeds to the creditors.

Chapter 11 Bankruptcy
Chapter 11 bankruptcy can be described as the rehabilitation, restructure or reorganization of the business to restructure the business and debt payments. This is done in a way so as to allow the business to meet its obligations from future earnings. This is supervised by a trustee appointed by the court.

Chapter 13 Bankruptcy
Chapter 13 bankruptcy is generally used by the consumers having sole proprietorships. This generally put forth a repayment plan unlike a debt consolidator and it takes only certain debts. This chapter enables the sole proprietor to save the personal assets that are involved with the business assets. In most of the small business bankruptcy cases, Chapter 13 is used for the debts when Chapter 7 is unable to cover them all.