Reorganization Vs. Bankruptcy

A Chapter 11 bankruptcy, known as reorganization, is beneficial to a company that wishes to continue in operation. A Chapter 7 bankruptcy, known as liquidation, is beneficial for a company that no longer wishes to remain in business. In both proceedings, a portion of the company's debt is discharged.

Considerations

While both individuals and businesses can file for Chapter 7 bankruptcy protection, usually only businesses file uner Chapter 11. Chapter 13 bankruptcy, which is similar to Chapter 11, is available for individuals.

Function

Chapter 7 bankruptcy is intended for those looking to liquidate all assets and receive the largest possible discharge of debts. Chapter 11 bankruptcy allows businesses to create a repayment of debt plan.

Assets

In both Chapter 7 and Chapter 11 proceedings, the assets at risk are solely those of the company, not the stockholders, unless the company is a sole proprietorship.

Automatic Stay

Both Chapter 7 and Chapter 11 bankruptcies allow the debtors an automatic stay, during which time all collections on the part of creditors must cease.

Effects

Filing under Chapter 7 generally results in the dissolution of a company or corporation. Filing under Chapter 11 allows an opportunity to catch up on paying its debts and keep the company alive.

References

• U.S. Courts: Chapter 11 Bankruptcy Basics
• U.S. Courts: Chapter 7 Bankruptcy Basics