Understanding Business Bankruptcy

What exactly is business bankruptcy Columbia MD? In a very basic level, business bankruptcy is a terminology used to define a complex legal procedure that occurs when a business is not able to settle its debts after it has been in operation for more than one year. This period is called the amortization period, and during this time, the business will make regular payments to its creditors. The entire bankruptcy procedure is then handled by an appointed federal bankruptcy court, and any financial decisions about a proposed bankruptcy case are usually made by such a court.

Filing a Petition

Under most state codes, business bankruptcy means filing a petition with the federal bankruptcy court that the business is unable to pay its debt and that it will not file for bankruptcy. The state courts usually treat the business filing as a petition for chapter 7 personal bankruptcy. A business can also choose to file for Chapter 13 liquidation, which occurs when the assets of the business are sold to meet its creditors’ payment obligations. However, a business cannot choose to file for these two different types of bankruptcy at the same time.

Several Ways to File

There are many ways a business can go about filing for business bankruptcy. If the company is one of several involved in a business merger or sale, there may be separate petitions filed with the court. For instance, if a corporation and its franchisees have all agreed to sell off certain business assets to raise capital for the purchase of a new venture, each franchisee may file a petition in order to participate in the merger or sale and become its creditors. With a chapter 7 business bankruptcy, all the debt of each individual franchise would be combined together into one loan that would be owed to the bankruptcy estate instead of the individual creditors.

Paperwork Process

Once the business has filed for business bankruptcy, the bankruptcy trustee will process the paperwork and begin looking for unsecured assets that can be liquidated to pay off outstanding debts. Among the property that may be liquidated are company vehicles such as trucks and cars, equipment, and supplies, office furniture, fixtures, and computers. Some companies have assets such as inventory or accounts receivables that they simply cannot liquidate. In cases like this, the bankruptcy trustee may organize a distribution auction in an attempt to get any excess inventory or receivables to sell to make up the loss. The distribution of these assets is usually conducted through a trustee of a seller’s lien.

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