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Business Bankruptcy Online - Bankruptcy Law and Chapter 11

Business Bankruptcy Online - Bankruptcy Law and Chapter 11

Business bankruptcy law for large and small businesses

Running a business involves numerous assets, leases, union contracts and stockholders making business bankruptcy very different to personal bankruptcy. The same rules simply do not apply. Declaring bankruptcy when company finances are spiraling out of control is an option open to companies big and small; from the dry cleaners on the corner to multi-national corporations.

Business bankruptcy is declared by Chapter 11 - this is the chapter in the United States Bankruptcy Code that deals with company bankruptcy. Chapter 11 is designed to allow the business to remain open and functioning while the court investigates its financial matters. A court-appointed committee of trustees inspects the company, and then reorganizes the business in such a way that eradicates any financial dilemma. A plan for this reorganization must be set and agreed upon by committees that represent both sides of the issue (the stockholders and the creditors) and then be approved by the judge before it can go into effect.

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According to the Federal Judiciary year-end report for 2009, bankruptcy filings under chapter 11 rose by 68%, while the American Bankruptcy Institute reports a total of 60,837 businesses filing for bankruptcy.

Since businesses differ in type and size (some are sole proprietorships, some corporations, others partnerships) the amount of responsibility the individual has in the company's bankruptcy varies. With a sole proprietorship, the owner is linked directly to his or her business. This puts the owner's personal assets at risk should business falter. If the business starts to owe its creditors more than it can pay, the court may be able to liquidate some of the owner's assets in order to pay off the creditors.

In the matter of a corporation, the owners, or stockholders as the case may be, stand separately from the business as far as personal assets are concerned. This way, the stockholders are protected from liquidation if the company declares bankruptcy.

A partnership, on the other hand, is a blend of the first two. Although the partners exist separately from their partnership, they are allowed to use their personal assets as a relief measure to save their business. But this allowance also necessitates that business partners seek protection from having their assets assumed and liquidated by the court.

Business bankruptcy hit the news headlines in 2002 when the telecommunications corporation, WorldCom, filed for bankruptcy after falling under due to fraudulent accounting matters. The Lehman Brothers more famously filed for bankruptcy in 2008 with over $600 million in assets. Other famous companies who have filed in the past include Continental Airlines, Texaco and General Motors.