Jeffrey B. Irby, P.C.
WHAT YOU NEED TO KNOW ABOUT THE DIFFERENCE BETWEEN REORGANIZATION AND LIQUIDATION BANKRUPTCY
Filing for bankruptcy can sound like a very intimidating and complex process, but in reality, it can be a true lifesaver for both businesses and individual consumers. If you or your company have gotten in over your head with debt and aren’t able to keep up with your day-to-day expenses, choosing to file for bankruptcy might offer some light at the end of the tunnel just when things seem darkest.
There are a number of different types of bankruptcy available to both businesses and individuals, but most forms will seek to manage your insolvency by means of either reorganizing or liquidating some or all of your debts.
When it comes to resolving your debts, reorganization tends to be the preferred method for businesses and individuals alike. Instead of completely closing down, a company can file for Chapter 11 bankruptcy, which means they want to fulfill their obligations to their creditors while still remaining a fully functioning business.
Chapter 11 is based upon reorganization, which means the businesses’ finances will be restructured to include payments to their debtors. If the company was having trouble meeting payroll needs, or had other challenges in addition to paying their bills, reorganization will allow for a complete overhaul of their cash flow. Ultimately, this option is beneficial for all parties involved, as the company is allowed to keep their assets while continuing to stay open, and debtors receive the money they are owed.
Reorganization works similarly with individuals, and is completed under Chapter 13 of the US Bankruptcy Code. Much like a company who wants to keep its assets, a person filing for bankruptcy usually wants to keep their home or car. Chapter 13 will allow them to create a repayment plan with the guidance of the court, and they will be able to resolve their debts while maintaining possession of their property.
Some situations find that a different type of bankruptcy works better, depending on the amount of debt and ability to reorganize. In this case, liquidation is the method that debtors would use to recover any losses from a business or individual. This option, called Chapter 7, takes an inventory of debts owed and then requires the business or individual to begin selling their assets to cover their balance due.
This option often times leaves a company with nothing left, and can put an individual in a difficult place of relinquishing home ownership or any savings they had accumulated. Debtors often come out of a liquidation in a less than favorable position as well, as the debts they are owed typically far exceed the assets a person has available to sell.
However, some people find that due to low income or other circumstances, paying back their debts would be impossible. It’s in this case that liquidation is the only option realistically available to them.
If you are thinking about filing for bankruptcy and aren’t sure what your first steps should be, contact Bankruptcy Solutions today. We will answer all of your questions and help create a plan that works best for you.