When individuals or businesses face overwhelming debt, bankruptcy can offer a way to regain financial stability. However, bankruptcy laws for businesses and individuals differ significantly in their procedures and outcomes.
Bankruptcy options for individuals
For individuals, the most common forms of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 bankruptcy, also known as liquidation, allows individuals to discharge most of their unsecured debt, such as credit card balances and medical bills. In return, the individual may need to liquidate some of their assets.
Chapter 13, known as a reorganization bankruptcy, allows individuals with a steady income to create a repayment plan to pay off their debts over three to five years while protecting their assets.
Bankruptcy options for businesses
Businesses also have bankruptcy options, but they are generally more complex. A business can file under Chapter 7 or Chapter 11, with Chapter 11 being the most common choice for large businesses that want to continue operating. Chapter 7 for businesses involves liquidating the company’s assets to repay creditors, which usually means the business will close.
In contrast, Chapter 11 allows the business to reorganize its debts and continue operating while it works on a plan to repay creditors over time. This option is usually reserved for larger businesses but can be used by smaller businesses as well.
Key differences in bankruptcy laws
The main differences between business and individual bankruptcies lie in the complexity of the process, the available options, and the impact on operations. Individuals typically focus on debt discharge, while businesses aim to reorganize and continue operations if possible. Additionally, businesses may need to consider more factors, such as employee obligations and maintaining business relationships during the bankruptcy process.