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A brief introduction to corporate bankruptcy

On Behalf of | Jul 16, 2015 | Corporate & Business Tax

New York business owners and operators are encouraged to educate themselves about state and federal tax procedures and other processes in order to promote business stability and growth. It is also in their best interest to be familiar with investment tactics, as well as market conditions and other economic factors. Unfortunately, though, some business owners will find themselves facing the prospect of bankruptcy no matter how hard they have worked to pay off their debts. That is why it is important for all business owners to understand corporate bankruptcy guidelines and options.

According to the United States Bankruptcy Court, the basic concept of bankruptcy is the same for individuals and corporations alike. Filing for bankruptcy serves two main purposes. The first purpose of filing for any type of bankruptcy is to repay creditors using available property in an orderly and responsible manner. The second purpose is to give the debtor the opportunity to relieve most if not all of his or her debts.

In cases involving small businesses and/or large corporations, two types of bankruptcy are available. Investopedia.com explains Chapter 7 corporate bankruptcy depends upon the liquidation of all company assets in order to pay off creditors. Consequently, the process of filing for Chapter 7 involves the company in question stopping all operations and going out of business completely. An appointed trustee then sells off company assets and uses the funds to pay off qualifying creditors.

Chapter 11 bankruptcy, on the other hand, allows businesses to reorganize in their debts, assets and business practices. Filing for Chapter 11 gives companies the opportunity to restructure unmanageable debts without having to go out of business or liquidating assets entirely. The process of filing for Chapter 11 is characterized as generally being more expensive than filing for Chapter 7, but is recognized as the preferred option in many cases.



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