Information on Business Bankruptcies

by | Apr 12, 2013 | Lawyer

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Statistically, 50% of small businesses fail in the first five years of their existence. There is a big difference between a voluntary closure and failure, failure are closures which are due to bankruptcy, legal action or insolvency.

When business people are discussing business failures and attempting to get bankruptcy information in Los Angeles, they normally turn to the recognized reasons for failure. Mostly, the reasons are lack of experience of the capitalist, insufficient capital, poor credit arrangements and personal use of business funds.

Eventually, many start-ups face bankruptcy, some are liquidations which ends with the business being declared a failure, others focus on reorganization; it all depends on the state of affairs of the business.

When you ask an attorney for bankruptcy information Los Angeles, he will tell you that there are three roads to take depending on the way the business is structured. A sole proprietorship is an extension of the individual who owns the business; he is personally responsible for all the assets and liabilities. When this business fails, Chapters 7, 11 and 13 can be employed. Corporations and multiple partnerships are entities which are distant from the owners and when they fail, Chapters 7 and 11 can be used.

Business bankruptcy Chapter 7:

When it is realized that there is no future for the business, Chapter 7 is the logical way to declare bankruptcy. When the debts are so great that restructuring is out of the picture, Chapter 7 is used, it is also used when the business has few assets, if any. If the business is based on the skills of the owner, it may not have assets.

When Chapter 7 bankruptcy is declared, a trustee is appointed by the court and his job is to establish all the bankruptcy information in Los Angeles that he can. The trustee takes possession of assets, if there are any, and sells them. The proceeds from the sale are used to pay the creditors of record. When the debts have been settled, either in full or partially, the sole proprietor is discharged from his debt, he has no further obligation to pay or be concerned about the unpaid portion of the debt.

Reorganization, Chapter 11:

This is a better choice for a business that seems to have a future but finds itself in difficulty. Chapter 11 allows the company to reorganize and stay in business under a court ordered trustee. Depending on the business, it is not rare for the owner to be appointed as the trustee. The trustee develops a plan for payment of the debt and presents to the creditors for approval. If the court finds that the plan is fair, it is approved.

Reorganization, Chapter 13:

This is a reorganization which is for consumers. A repayment plan is developed by the debtor and offered to the court for approval. If approved, the plan will run for no more than five years and any debt that is still on the books at the end of this period is discharged.

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