When can a business go bankrupt and how can a business go bankrupt

There were 34,885 Business bankruptcies filed in 2003 according to the American Bankruptcy Institute.

Business Bankruptcy is a legal proceeding in which a business that cannot pay their bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. Federal bankruptcy laws govern how companies go out of business or recover from crippling debt.

When can a business go bankrupt?

A business can choose to become bankrupt when it owes over $1,000 and is insolvent. A business is insolvent when it is unable to make payments on its debts as they become due, or if it would be unable to pay off its debts even if the business assets were sold.

How can a business go bankrupt?

A business can go bankrupt in one of three ways.

  • First, voluntarily declare bankruptcy. This is the most common filing for businesses.
  • Second, a business will become bankrupt if it makes a proposal to its creditors, which is not accepted by them.
  • Third, the creditors of a business can sometimes push the business into bankruptcy by filing a petition with the court.

Business bankruptcy will be handled by a licensed trustee in bankruptcy who will handle the sale of the business’ assets and the distribution of proceeds to creditors. Usually, the assistance of a bankruptcy lawyer is required and the situation should be reviewed with a lawyer before the trustee is engaged.

Business Bankruptcy may make it possible for you to:

  • Eliminate the legal duty to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.
  • Stop eviction, foreclosure, or repossession of a car or other property so you can catch up on missed payments. But, in most cases, you will still need to choose between continuing to make payments or giving the property back. Bankruptcy won’t eliminate a lease, mortgage or car loan and let you keep the property at the same time.
  • Stop wage attachments, debt collection harassment, and similar creditor actions to collect a debt.
  • Restore or prevent termination of utility service.
  • Allow you to challenge creditors who have committed fraud or who are otherwise trying to collect more money than you really owe.

Business Bankruptcy can’t cure every financial problem, nor is it the right step for everyone. In bankruptcy, it is usually not possible to:

  • Eliminate certain obligations to “secured” creditors. A “secured” creditor is a creditor that can take something (called “collateral”) if the debt is not paid as agreed. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process, and bankruptcy can eliminate your obligation to pay more money if your property has been taken. But, you generally cannot keep the collateral unless you keep making payments on the debt.
  • Discharge certain debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
  • Protect co-signers on your debts. If a relative or friend has co-signed a loan, and you discharge the loan in bankruptcy, the co-signer may still have to repay all or part of the loan.
  • Discharge debts that arise after bankruptcy has been filed.

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