Bankruptcy

What happens when a business files Chapter 7 bankruptcy? Many businesses in the United States file bankruptcy each year. Business bankruptcies are similar to individual bankruptcies in that the business files a petition for protection against creditors in bankruptcy court and is issued a "stay" while the court appoints a trustee to take over the finances of the business.

When a business goes bankrupt, however, the impact is usually larger than when an individual goes bankrupt. Particularly when the business files Chapter 7. A business Chapter 7 bankruptcy is virtually the same as an individual Chapter 7. The business must list all their debt and assets. If there are bondholders or mortgage lenders to whom the business owes money to, those debts are not dischargeable. A creditor will usually secure the value of his loan through the assets of the business and, in some cases, force the business to dissolve. In smaller businesses, this can be catastrophic as employees are usually the first ones to feel the impact. Many smaller businesses go bankrupt every year and many of them owe salaries to their employees. Unfortunately, the employees must stand in line behind the banks for their money and, in most cases, will never see the money owed to them by their former employer.

A chain of events often starts when a business goes bankrupt. Smaller creditors may not have secured loans for merchandise or services they gave to the business and for which they are owed. Those without secured loans will generally not see those funds as the business owners often liquidate as much as they can prior to filing Chapter 7. When a business goes bankrupt, the people who are most often injured the most are the employees that are depending on their paychecks, and small creditors, such as suppliers, who sold the business items or service on credit.

Probably the most common business to go bankrupt in the United States are restaurants. A restaurant is the easiest business to open, but the most difficult to maintain. Restaurants often buy food products from suppliers, have a large staff who cook and wait on tables and owe a mortgage on their property. When a business goes bankrupt, such as a restaurant, employees usually find themselves out of work and suppliers incur debt. In such cases, only the bank holding the mortgage gets any payment. When a business goes bankrupt, a trustee is assigned to handle the finances of the establishment. If it is a large business, many times it is sold to another entity and some employees keep their jobs. If it is a small business, however, the impact on the employees and suppliers can be catastrophic. In many cases, when a business goes bankrupt, it starts a chain reaction that adversely affects other businesses and employees.

Bankruptcy | Advantages Of Bankruptcy | Chapter 7 Bankruptcy | Chapter 13 Bankruptcy | Filing Bankruptcy | Debt Exempt From Bankruptcy | Bankruptcy Abuse Prevention And Consumer Protection Act | When A Business Goes Bankrupt | Assets That Are Exempt From Bankruptcy | Life After Bankruptcy |