Commercial bankruptcy – or Chapter 7 and Chapter 11, as it is often identified – is something that business owners or management personnel may consider if the business falls upon hard times.
If the company is unable to pay the bills, then Chapter 7 and Chapter 11 are two options for alleviating financial stress or closing the business altogether. (For more guidance, speak with a bankruptcy attorney before filing anything in court.)
However, these are not the only options for troubled businesses. Here are two alternatives to commercial bankruptcy that may offer better outcomes:
If the business owners and management team think that the company stands a chance at surviving in the future, then they may want to consider an out-of-court workout instead of traditional business bankruptcy filings.
In this scenario, the business must develop a restructuring plan on its own that is agreed upon by all of its creditors. This can be beneficial for the business and the creditors because it is much less time consuming and costly than going to court. If only some of the creditors agree, however, then the workout is not feasible and the business may need to file for commercial bankruptcy.
Assignment for the Benefit of Creditors (ABC)
If there is no way a business can reorganize its debts, then the owner(s) may decide to liquidate the assets. An alternative to Chapter 7, where assets are sold and proceeds distributed among creditors, is an “assignment for the benefit of creditors,” or ABC.
In this scenario, the business has the opportunity to sell its assets itself, rather than through a trustee in a Chapter 7 business bankruptcy filing. Why is this beneficial? For owners who are personally responsible for the firm’s liabilities, this option can enable greater control over determining the value of assets.
Learn More about Alternatives to Commercial Bankruptcy
Before filing any type of bankruptcy paperwork, be sure you speak to a qualified bankruptcy attorney in your area. Some states have different laws than others regarding these alternatives.