If your business is struggling, you have two options in bankruptcy: a Chapter 7 or a Chapter 11. A Chapter 7 bankruptcy case is used for a business that intends to close its doors; the business must already have ceased operations or must close its doors upon the filing of the petition. The bankruptcy process will then be used to liquidate the assets of the business, if any, and provide a payment to the creditors of the business. Often a business will have no assets to liquidate, in which case, the creditors will receive no payment. A Chapter 7 case is often used to provide official notice to creditors that the business is defunct and that it has no funds from which to pay its creditors.
A Chapter 11 case, on the other hand, is used to reorganize a business, with the goal of keeping the business open. If you believe that your business has a chance to continue operations and to become profitable again, then you would utilize Chapter 11. By filing a Chapter 11 case, your business can get a much needed break from aggressive creditors, while getting an opportunity to propose a long range plan to address the obligations of the business. Filing a Chapter 11 case can be costly, complicated and time consuming. However, it can often be just the right solution for a business looking to keep its doors open.