Chapter 11 bankruptcy is a useful legal tool for Warrendale businesses that need to reorganize their operations in order to become profitable. Unlike Chapter 7 bankruptcy proceedings that require businesses to sell off their assets and generally end with the businesses closing their doors, Chapter 11 proceedings can prevent businesses from closing down.
Different types of business entities can file for Chapter 11 business bankruptcy but depending upon how the assets of the entity are held the business’s owners may find that their personal assets are involved in the settlement of their businesses debts. For example, corporations, which are owned by shareholders, are their own entities and generally will not require those owners to place any personal assets on the table in the bankruptcy proceedings.
Partnerships are similar to corporations in that they exist as separate entities from the owners, but the owners of partnerships may have to use their personal assets to reduce their debt obligations to their creditors. Sole proprietorships which are businesses held by individuals generally require owners to make their personal assets available for the satisfaction of their business loans in Chapter 11 bankruptcy.
A business owner should know how his entity is organized, be it a corporation, partnership, or sole proprietorship. If he has any questions about its structure or the type of business entity that it is, he may wish to speak to a bankruptcy attorney about his potential personal liability in the event that the business faces financial hardship. Readers may use the contents of this blog post as an introduction to one small part of the Chapter 11 bankruptcy process but should rely on the information contained herein as legal guidance.