Business Bankruptcy Online - Bankruptcy Law and Chapter 11

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Business bankruptcy law for large and small businesses

No matter whether you own a dry cleaning company, are a stockholder in a mega software corporation, or share a chain of coffee shops with a partner; you have the option of declaring business bankruptcy if things start to go bad.

Since businesses are large, complicated creatures, the rules that apply to personal bankruptcy don't apply. There are leases, union contracts, stockholders and numerous assets to think about; all details that do not fit the individual's bankruptcy case.

Business bankruptcy is declared by Chapter 11 - this is the chapter in the United States Bankruptcy Code that deals with company bankruptcy. The Federal Judiciary reports that 8,474 businesses filed for Chapter 11 in 2003. 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.

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. Other famous companies who have filed in the past include Continental Airlines and Texaco.