When a company is in bankruptcy in Pennsylvania or any other jurisdiction, the debtor company must reveal the existence of all assets, including all real estate owned. The company cannot simply sell real estate or other assets without court approval. In one Chapter 11 case, a developer from Montgomery County allegedly sold a property while it was still in the bankruptcy without pre-approval to do it.
A Chapter 11 bankruptcy is generally a reorganization procedure allowing a business in Pennsylvania or elsewhere to get rid of some of its debt and negotiate restructuring of other debt, thus perhaps allowing the company to keep operating with a modified debt structure. In some instances, particularly those in which a company has planned carefully in advance and has the assistance of experienced bankruptcy counsel, it may file for bankruptcy and continue to operate straight through the process, coming out of the bankruptcy in a stronger economic position than before. Another benefit of a Chapter 11 filing is that a company may continue to operate without interruption of its business affairs and without a shutdown of its retail outlets.
The Bankruptcy Code allows a business in Pennsylvania or elsewhere to file a Chapter 11 bankruptcy. This reorganization provision is generally a plan to restructure the finances and activities of the company and remain in business. Some companies, however, may need Chapter 11 only as a transitional phase where they will continue to operate at least partially, but under a plan that, in the end, will lead to final closing and liquidation.
A Chapter 11 bankruptcy gives a business entity the chance to significantly reorganize its debt structure in an attempt to find a viable way to remain operating. That solution also generally benefits the creditors, who otherwise might get a far lower return in a Chapter 7 liquidation. The procedure and general legal principles are similar from state-to-state, including in Pennsylvania, because the bankruptcy laws are based largely on the federal Bankruptcy Code.
A small business in Pennsylvania can file a Chapter 7 bankruptcy if it intends to cease doing business and owes unmanageable debt. If the company closes its doors, a Chapter 7 Trustee will take over any unencumbered assets and will likely hold a public auction to sell the property. In the meantime, as soon as the case is filed in the federal bankruptcy court, an automatic stay is issued to protect the business from further collection activities as it winds down its affairs.
Small businesses can file for a Chapter 11 or a Chapter 7 bankruptcy in Pennsylvania and all other federal bankruptcy districts. Chapter 11 is a reorganization plan that a business will file to reorganize its debts and business affairs, and hopefully continue to do business, even after the bankruptcy is ended. The business in a Chapter 11 ultimately wants to be discharged from the bankruptcy with a new lease on life and with the authority to continue doing business.