While every entrepreneur hopes their business will succeed, the simple fact is that this is not the case with all businesses. Sometimes businesses do fail and when this happens business bankruptcy may be the only option that is left. Understanding business bankruptcies can help to smooth the process. Although some court action has imposed restrictions on business bankruptcies, it is still possible to file a business bankruptcy. The first step to filing a bankruptcy for business is to understand the different types of business bankruptcies that are possible.

The type of business bankruptcy that is ideal for your situation will depend upon the type of business that you hold. For example, if you have an LLC, a partnership or a corporation then you have the option of filing either a Chapter 11 or a Chapter 7 bankruptcy. On the other hand, if you have a sole-proprietorship then there is actually not any distinction between your business and you. In this case, then you can file for a Chapter 13 or Chapter 11 or Chapter 7 bankruptcy. Regardless of which type of business bankruptcy that is chosen, an appointee will be appointed by the court. It is the role of the appointee to oversee the entire process and ensure that everything is handled smoothly. They are also responsible for ensuring that no fraud takes place.

Most people choose to file Chapter 7 because it offers the opportunity to erase a large portion, if not all, of the business related debts. The assets of the business are liquidated in order to pay off remaining creditors. You must meet certain criteria in order to qualify for this form business bankruptcy. Qualifications include fitting in certain monthly income restrictions, which vary by state. Essentially, you must not have enough disposable income on a monthly basis that would allow you to file for one of the other business bankruptcies, Chapter 11 or Chapter 13.

Chapter 11 business bankruptcy allows you to work with the trustee that is appointed by the court for the purpose of reorganizing the business and repaying creditors. It will be up to the court to determine whether the business must repay the debts in whole or in part. This type of business bankruptcy can be expensive and time consuming, but it can allow you the option of retaining the business and not liquidating it.

Chapter 13 business bankruptcy calls for secured debts to be less than a particular amount, which is currently $922,975. In addition, unsecured debts must not total more than $307,675. As with other business bankruptcies, with Chapter 13 you must work with the trustee to develop a method for paying back debts over a period of time that is agreed upon. Debt repayments may be either in part or in whole.

Although all forms of business bankruptcies can be a time consuming process, they do offer a method for businesses that are struggling financially to repay creditors and possibly even to reorganize in order to salvage the business.

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