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Q.Is Chapter 7 or Chapter 11 better for my Business?
A.To determine whether a Chapter 7 Liquidation or Chapter 11 Reorganization should be filed, the owners of a business must first determine what caused the present problems faced by the business. Reorganization can't create a market; increase gross revenue, or make up for an impossible labor market. If this is what caused the bankruptcy, then a chapter 7 may be appropriate.
However, if servicing old debt or disadvantageous leases brought the company to its current financial predicament, then a Chapter 11 Reorganization may be approrpriate. In a Chapter 11 Reorganization, monies can be freed up from servicing old debt and bad leases/contracts can be cancelled.
In between the Chapter 7 liquidation and the Chapter 11 reorganization, is a Chapter 11 liquidation, which may provide a business with sufficient breathing room to sell the business, or its assets, in something other than a fire sale. The resulting proceeds could then be used to pay taxes and/or unpaid salaries. The bankruptcy could then be converted to a Chapter 7 or dismissed if bankruptcy protection is no longer needed. The court, however, will probably condition a dismissal on the payment of the sale proceeds, or a portiont thereof, to the creditors.
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