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Chapter 11 bankruptcy might be better for struggling businesses

A small business that is experiencing problems in Texas and across the United States will often consider filing for bankruptcy. One question that comes to forefront during this time is whether filing for Chapter 11 bankruptcy is better than other alternatives like Chapter 7. The reality is that for businesses that would like to continue operating, Chapter 11 is generally viewed as the better option. In fact, many believe that Chapter 7 for businesses is simply an admission that the end is near and the choice of Chapter 7 is the final concession.

An example of Chapter 7 and its faults for a business is David Barton gym. The chain had locations in several cities across the nation and was a quirky health club in its design and marketing strategy. Near the end of 2016, the gym announced it was closing indefinitely. Workers and members were caught totally off guard by the development. They filed for Chapter 7, essentially walking away from all its responsibilities - something a business generally does not do when it is having financial issues.

One expert - a professor of finance - states that Chapter 7 is where "companies go to die" as it disappears completely. For a business that is hoping to continue operation under preferable terms for its creditors, Chapter 11 bankruptcy is more useful. With a Chapter 7, it is often perceived as a better option for those who are filing for individual bankruptcy and have predominately unsecured debt they would like to clear. A business is different and therefore, is usually advised to use Chapter 11.

For those who are considering their options with a small business and business bankruptcy, knowing when to use Chapter 11 and try to salvage it or Chapter 7 to just walk away is essential. Speaking to a lawyer who is experienced in Chapter 11, Chapter 7 and all the different ways in which to get on stronger financial ground personally and professionally is key to a case.

Source: marketplace.org, "Chapter 7: Where companies go to die," Sabri Ben-Achor, May 15, 2017

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