Small Business Bankruptcy:

Small business bankruptcy occurs when the business suffers considerable losses over a period of time and fails to pay off its creditors. Small business firms fail due to many different reasons.  The situation where a small business firm completely fails to pay off its creditors, the business firm can file a petition for bankruptcy in a bankruptcy court and the bankruptcy court helps the business firm to pay off its liabilities under its safeguard and protection.

Types of Small Business Bankruptcy:

There are three major types of small business bankruptcy, namely Chapter 7 bankruptcy, Chapter 11 bankruptcy and Chapter 13 bankruptcy. The submission of petition for bankruptcy by a small business under chapter 7, chapter 11 or chapter 13 totally depends on the form of the business itself. In a sole proprietorship business firm, there is sole owner of the business and he himself is responsible for all the affairs of the business. If the owner of a sole proprietorship firm wishes to file a petition for bankruptcy, he can file his petition for bankruptcy under chapter 7, chapter 11 or chapter 13 bankruptcy, whereas on the other hand, association of persons (partnership firms) and/or corporation and companies can only file the petitions for bankruptcy under chapter 7 or chapter 11 bankruptcy.

• Chapter 7 Bankruptcy

When the small business firm completely reaches a shut down stage and there is no possible way for the business to find a future for itself, the best option available for the business is to file a petition under chapter 7 bankruptcy to pay off its creditors and settle its liabilities. Filing a petition for bankruptcy under chapter 7 merely means that the business has no further future and it is absolutely over. For a petition under chapter 7 bankruptcy, the court assigns a liquidator whose job is to take control of all the assets of the business and liquidate (turn into cash or equivalent) them to pay off the creditors of the business and to settle all the liabilities of the business. After the liquidation and settlement of liabilities, the owner of a small business receives a clean chit from the liquidator depicting that the owner has no further obligation to pay his creditors.

• Chapter 11 Bankruptcy

The small businesses that are not so badly hurt by the financial constraints that their existence become impossible, usually file a petition for bankruptcy under chapter 11. The bankruptcy court again assigns a trustee for such a petition who calls a meeting of the owner of the business and its creditors to resolve the issue. The owner of the business gives his plan for the payment of the liabilities of its creditors over a longer period of time and the creditors vote on that plan. Finally, if the trustee feels that the plan is reasonable, he approves it.

• Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a reorganization bankruptcy typically reserved for consumers, though it can be used for sole proprietorships. You file a repayment plan with the bankruptcy court detailing how you are going to repay your debts. The amount you will have to repay depends on how much you earn, how much you owe, and how much property you own.

This is an Original Article written by the DefeatBankruptcy.org Staff
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