What Is the Most Common Type of Bankruptcy for Businesses in PA?

Like individuals, businesses can run into financial difficulties and need the protection that bankruptcy affords. When a Pennsylvania business finds itself in this position, the owner can choose from one of several types of bankruptcy proceedings. Each type has advantages and disadvantages that business owners should consider before filing.

Despite this variety, one type of bankruptcy is clearly favored by individuals and businesses in Pennsylvania and across the country. Chapter 7 bankruptcies represent over half of all bankruptcy filings in the United States and Pennsylvania. Here is what you need to know about this form of bankruptcy and what it offers to business owners.

Bankruptcy Filing Statistics

Between March 2023 and March 2024, there were over 20,000 business bankruptcy filings in the United States. Of these, over 10,000 were filed under Chapter 7. About 7,600 were Chapter 11 filings, while the remainder were Chapter 13 cases. Thus, a little more than half of all business bankruptcy filings fell under Chapter 7 cases.

This trend continued in Pennsylvania. Between March 2023 and March 2024, 396 business bankruptcy cases were filed. Of these, 241 were Chapter 7 filings, with the remaining cases filed under either Chapter 11 or Chapter 13.

Chapter 7 Business Bankruptcy Explained

For both individuals and businesses, a Chapter 7 bankruptcy is often called a “liquidation” bankruptcy. The court trustee identifies non-exempt business property and then liquidates, or sells, that property for money. Any funds received from the liquidation sale are then given to the business’s eligible creditors.

Once the liquidation of the business’s assets is complete, any remaining eligible debt is forgiven. The whole process can take a matter of months to complete.

Advantages of Chapter 7 for Businesses

The short duration of proceedings is one of the chief advantages of a Chapter 7 bankruptcy. Compared to the complex reorganization processes found in Chapter 11 and Chapter 13, a Chapter 7 bankruptcy is more straightforward.

The swift movement of a Chapter 7 bankruptcy means business owners can potentially return to their lives more quickly and without the weight of debt.

Chapter 7 Disadvantages for Businesses

Perhaps the most significant challenge in a Chapter 7 bankruptcy is correctly listing all exempt business property and protecting such property from liquidation. Exemptions under state law and federal law differ. Businesses must know what set of exemptions to claim to best protect their business assets.

Therefore, without careful planning, business debtors could find themselves newly released from bankruptcy proceedings with few, if any, assets with which to rebuild.

How to Choose the Right Type of Bankruptcy

Just because Chapter 7 is a common form of bankruptcy in Pennsylvania doesn’t necessarily mean it is the right choice for your business.

A knowledgeable business bankruptcy attorney in Pennsylvania can evaluate your specific situation and goals. From there, your lawyer can help you decide which form of bankruptcy is the best for your needs and guide you through every step, from the initial filing to the final discharge.

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