Types of Bankruptcy for Business

The cycle of economic recession, which disrupted the United States economy, saw several cases of business bankruptcy. Sadly, most of these cases were of banks and financial companies filing for bankruptcy. Due to these bankruptcy filings, the blow of economic recession was not controlled and was left un-cushioned which resulted into an acceleration of the recessionary cycles. This in turn contributed to more business bankruptcy filings, which increased the rate of unemployment. In the following paragraphs, the different types of bankruptcy and their procedure of claiming bankruptcy have been discussed. Take a look.

Types of Bankruptcy Filings for Businesses

According to United States Title 11, which is a bankruptcy code that holds all the bankruptcy laws of the United States, there are 3 prominent types or chapters under which a business organization can file for a bankruptcy. There are several bankruptcy questions to ask, but before you do so take a look at the different types of bankruptcy for business, as they will answer most of your queries:

Chapter 7
The chapter 7 bankruptcy, is often, wrongly depicted as a bankruptcy that is valid only for individuals. According to the Bankruptcy Rules for chapter 7, the process involves handing over all the assets to the liquidator or trustee of the court. Here the liquidator or the trustee goes through the nature of the liabilities and makes a pro-rata allotment of all the types of debts, wherein the secured loans or debts such as mortgage loans are given a certain priority in repayment of debt. Next comes the unsecured loan lenders and lastly the subprime lenders. After all the assets are liquidated at the best possible price by the trustee, the entire sum is repaid to the lenders. Certain assets are exempted by the court from liquidation. The creditors or lenders do not have any claim over these bankruptcy Chapter 7 exemptions.

Chapter 11
The chapter 11 bankruptcy is applicable for both the individuals as well as businesses. The chapter 11 basically involves intervention by the courts, which, from the businesses point of view is an important aspect of the filing. The court freezes all the repayment accounts and prevents any creditor from claiming debt. In the mean time, the court's liquidator and the business organization, makes a repayment plan that spans 3 to 5 years. The extended time period and its rate of interest is mandated and monitored by the court. By far this proves to be a very good form of filing for most of the business organizations.

Chapter 12
If you are asking that 'what are the types of bankruptcy' then you have to know about this one. The specs are exactly similar to the chapter 11, but a chapter 12 bankruptcy is applicable to animal husbandry, fishing or farming businesses. Here also the court provides an intervention and helps the debtor make repayment plan. In rural communities this is a very common type of bankruptcy.

The bankruptcy procedure for businesses is an extremely complicated procedure and takes months and even years of proceedings. Often in cases of joint ventures, partners, subsidies and business ventures being present, the debtors file for bankruptcy under different charters. The sad thing about the business going bankrupt is that people lose their jobs and source of lively hood. In some cases where the company is a big bank or a large medical institute, the existence of which is necessary for the nation, the Government provides fiscal aid in a bid to save the business. This bankruptcy assistance is sometimes known as nationalization.