Whether your business can continue operations in bankruptcy will depend on the type of bankruptcy your company pursues. A seasoned corporate bankruptcy attorney can help you evaluate your company’s legal options, given your business’s needs and objectives.
Types of Business Bankruptcy
Businesses typically pursue one of two forms of business bankruptcy: Chapter 7 and Chapter 11. Chapter 7 bankruptcy, also called liquidation bankruptcy, involves selling off a company’s assets to generate money to pay its creditors and dissolving the business. Conversely, Chapter 11 bankruptcy, also called reorganization bankruptcy, involves restructuring a company’s operations and paying down its debts under the terms of a court-approved reorganization plan to allow the business to emerge from bankruptcy as a viable going concern.
Continuing Operations Under Business Bankruptcy
A company’s ability to continue operations while in bankruptcy depends on the form of bankruptcy it has pursued. In Chapter 7 bankruptcy, a company must wind down its operations and liquidate its assets. As a result, the business usually limits its operations to selling off existing inventory, equipment, and property or collecting outstanding accounts receivable to generate funds for the Chapter 7 trustee to pay the company’s creditors. The company’s operations usually occur under the supervision of the Chapter 7 trustee responsible for liquidating its assets and paying its creditors.
Conversely, in Chapter 11 bankruptcy, a company becomes a “debtor in possession,” which entitles the company to retain its assets for continued operation. A company will file for Chapter 11 bankruptcy when it intends to restructure its business, continue operations, and emerge from bankruptcy as a going concern. As a result, a company in Chapter 11 bankruptcy usually continues operations as usual. However, it will slowly restructure by closing or selling off unprofitable parts of the business over time per the terms of its reorganization plan.
Effects of Bankruptcy on Daily Operations
The effects on daily operations after filing for bankruptcy will also depend on the type of bankruptcy a company pursues. In Chapter 7, daily operations will shift to a “going out of business” mode, where the company will seek to sell off its remaining inventory or collect money owed to the company. In contrast, Chapter 11 bankruptcy will not immediately affect daily operations, with effects coming later as the business restructures operations by closing down or selling off unprofitable parts.
Considerations for Business Owners During Bankruptcy
Business owners may want to evaluate various considerations before and during bankruptcy, including:
- The suitability of Chapter 7 vs. Chapter 11, keeping in mind that Chapter 7 does not grant a discharge of outstanding debts for the business’s owners
- The need for careful financial management during bankruptcy to maximize assets to pay down debts in Chapter 7 or improve the company’s financial situation in Chapter 11
- The importance of hiring an experienced business bankruptcy attorney who can assess a suitable legal strategy for your company
Contact a Bankruptcy Lawyer Today
An experienced commercial bankruptcy lawyer can help you navigate the bankruptcy process in Pennsylvania and keep your company open for business if possible. Contact The Cooney Law Offices today for an initial consultation with our attorneys to learn more about what to expect when your company files for bankruptcy.
