When your small business is experiencing financial trouble and the situation might get worse it is better to file for bankruptcy in time with your creditors aware of the fact. Filing bankruptcy saves you from 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 may be sought by the owner by personally filing for bankruptcy under chapter 7 or chapter 11 of the bankruptcy code.
Chapter 7 Bankruptcy
It is the most common form of filing bankruptcy. The chapter 7 bankruptcy involves total liquidation of the assets of the company in order to pay the debts owned to qualified lenders. It is allowed when the company has no future and 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 or reorganization of the business to restructure the business and debt payments in such a way as to allow the business to meet its obligations form future earnings. This is supervised by a trustee appointed by the court.
Apart from the above mentioned there are other laws which monitor and describe filing a bankruptcy. It is therefore essential to find a suitable attorney to handle bankruptcy.