Types of Corporate Bankruptcy

Types of Corporate Bankruptcy

Corporate Bankruptcy is the legal process by which a company or other business declares that it’s unable to pay its debts and requires relief. There are various types of corporate bankruptcy, let’s see what they are. 

Liquidation of the business  

Bankruptcy may be the best choice when the business has no future. It’s usually referred to as liquidation. It’s usually used when the debts of the business are so overwhelming that restructuring them is not feasible. 

Business reorganisation    

It’s a better choice for businesses that may have a future as it’s a plan where a company reorganises and continues in business. It’s reorganised under a court-appointed trustee. The owner of the company may actually be the trustee. 

The company files a detailed plan of reorganisation outlining how it will deal with its creditors. Creditors vote on the plan. If the court finds the plan is fair and equitable, they’ll approve the plan. 

Reorganisation plans provide for payments to creditors over some period of time which may exceed twenty years. This type of corporate bankruptcies is exceedingly complex and not all succeed. It usually takes over a year to confirm a plan. 

Personal bankruptcy  

It’s a reorganisation bankruptcy typically reserved for consumers, though it can be used for sole proprietorships. With this bankruptcy you file a repayment plan with the bankruptcy court detailing how you’re going to repay your debts. 

The amount you’ve to repay depends on how much you earn, how much you owe, and how much property you own.  

Consult with a good business bankruptcy attorney before deciding on which type of bankruptcy you will file or whether you need to file bankruptcy at all. There may be other options you should explore first.

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