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Business bankruptcy

By Jakob Jelling
www.cashbazar.com

Business bankruptcy will usually allow the debtor to remain in business.

Business bankruptcy usually takes on a different form than personal bankruptcy proceedings. This is partly due to the fact that it is generally a bit harder to go bankrupt if you have a business - and the number of people who are affected by a bankrupt company is much higher than the number that is directly affected by personal bankruptcy proceedings. Another thing to consider is that just because a business has gone bankrupt does not mean that it will go out of business. In fact, according to bankruptcy law, it is possible for a company to stay in business so long as the money that is earned goes to pay off that company's debts.

Essentially, bankruptcy proceedings just mean that the debtor (the business going bankrupt) is financially unable to pay off its debts. Therefore, legal proceedings take place in order to figure out a way to pay off most of the debts. Sometimes this means that the business can pay off its debts in full by staying in business. However if the debts are too high, it's possible that the business itself will be sold and the money gained through that transaction will go to pay off as much of the debt as is possible.

These two different types of bankruptcy are usually known by the numbers associated with them. For instance, filing for chapter 7 bankruptcy means that all of the debtor's assets will be sold off in order to pay as much of the debt as is possible. If the assets are not worth enough to pay off all of the debt, then the creditor is more or less out of luck as future earnings will not be used to pay off the rest of the debt.

Chapter 11, 12, or 13 bankruptcy will allow the person or business to pay off their debt in the future. This is generally what you see in business bankruptcy since most major companies do not want to go out of business due to the potential for future profits. If all of the business's assets are sold off, of course, then the business is forced to stay closed. If you own a business, in all but a few strange situations, you should be applying for chapter 11 bankruptcy instead of chapter 7.


About the author
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

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