Chapter 7 vs. Chapter 11 for Small Businesses | Westgate Law

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Chapter 7 vs. Chapter 11 for Small Businesses

When filing for bankruptcy the first decision that has to be made is what type of bankruptcy will be filed. There are certain qualifications for each and each one has its own pros and cons.

Chapter 7 bankruptcy, put simply, is a case of liquidation. It can be described as the most straightforward solution to a small business’s financial crisis. It makes good sense to file for Chapter 7 if the financial future of the company looks bleak, the size of the debt is so large that renegotiation/restructuring is not a viable alternative, assets are limited, and a fresh start is necessary.

Chapter 11 bankruptcy is quite different. It entails reorganization instead of liquidation. A structured plan for repayment of outstanding debts is created. The business is allowed to continue operations while the repayment plan is being formulated, but once the Chapter 11 is filed, the court and the creditors handle the company’s operation and leadership. Chapter 11 bankruptcies are particularly expensive and require an extensive amount of work. The company’s general leadership is required to work together with the attorneys and creditors involved as well as the court in order to successfully complete the process. It is quote common for Chapter 11 reorganizations to fail due to the extensive, difficult nature of the process and the sheer number of people and entities intricately involved in the process.

The Chapter 11 bankruptcy could be the best idea for your small business if your company has a strong likelihood of future sales, consistent consumer demand, substantial assets, and company leadership that is dedicated to completing the reorganization process and fulfilling the financial obligations as agreed.

For additional help deciding whether Chapter 7 or Chapter 11 is best for you and your company, contact Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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