For individuals facing financial challenges as a result of having liabilities that far exceed assets, bankruptcy often provides a welcome relief and a much-needed new start.
Corporations can also file for bankruptcy.
More about types of corporate bankruptcy:
Chapter 7
This is the most available option and most commonly used. It’s commonly known as straight bankruptcy.
Not as expensive as others to prosecute, it can be used by both corporates and individuals. This process includes the sale of all assets of the corporation. Proceeds are used to pay all creditors off.
Corporates aiming to pay all of their debts in less than six months should opt for this. This offers the quickest way for corporations to get out of debt and to get a new start.
Chapter 12
This is the newest form -introduced in 1986. It can also be filed by corporations, in addition to farmers with a regular income.
Before a decision can be taken about the types of corporate bankruptcy that will best suit a corporation, there are a number of assessments that must be made. This solution should ideally be taken as an absolute last resort.
Chapter 13
This option is typically limited to organisations, so corporations are assured that they will get the best out of the process.
Monthly repayments are spread out over a period of 3 to 5 years. During this time, creditors are paid off, while assets can be retained by the corporation.
Corporations can rely on trustees to monitor the process, while ensuring that creditors are fully paid.
The feasibility of this solution for corporations is dependent on the income of the business and not so much on assets.
