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What to know about business bankruptcy

On Behalf of | Mar 16, 2023 | Bankruptcy |

If your Connecticut business is experiencing financial difficulties, bankruptcy may be an effective tool to help it overcome them. Alternatively, it may provide a path to dissolving the company in a timely and relatively amicable manner. The type of proceeding that you opt to pursue will depend primarily on whether you want the company to continue operating.

Comparing Chapter 7 and Chapter 11 bankruptcy

Your company will file for Chapter 7 bankruptcy if the end goal is to dissolve the business. Typically, this occurs when there are insufficient funds to pay the company’s debts even after a restructuring. It may also be your only option if you can’t get a court to approve a Chapter 11 plan. In such a scenario, your company shuts down and its assets are liquidated. Any funds that are raised will be used to pay your creditors.

In a Chapter 11 proceeding, you submit a reorganization plan that must be approved by the bankruptcy judge. Your creditors may also need to agree to some or all of the plan before it goes into effect. The company remains operational during the course of the restructure, and you generally remain in control of the business and its assets while your case is ongoing.

How to choose the right path for your business

While filing for Chapter 11 bankruptcy allows your company to remain in business, it also comes with potential pitfalls. For instance, it may take several years to complete your restructuring plan, and a Chapter 11 case may be more expensive than other relief options. If you used personal collateral to secure a loan, filing for Chapter 7 protection may offer greater protection for those assets even if it means that your business must cease operations.

Filing for business bankruptcy may have negative consequences for your company such as a decreased ability to raise additional capital even if a restructure allows it to become a stronger player in the marketplace. It may also have negative consequences for your personal credit score if you secured a business loan based on your own creditworthiness.

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