Corporation Bankruptcy


Keep creditors from harassing you

Article List             Privacy Policy             Terms of Use 

It’s Important to Know the Ins and Outs of Corporation Bankruptcy before Filing

What you should know about corporation bankruptcy and business turnaround



If your business is struggling and you think it might benefit from a reorganization or all-out bankruptcy, it’s important to know all you can about corporation bankruptcy. Not knowing the facts could be harmful.

If you want to file for corporation bankruptcy, there are two main choices: Chapter 7 bankruptcy and Chapter 11 corporation bankruptcy. These two sections of the bankruptcy code set forth rules and regulations for filing corporation bankruptcy.

Details of Chapter 7 and Chapter 11 Corporation Bankruptcy

Experts also call Chapter 7 corporation bankruptcy a liquidation bankruptcy. This type of bankruptcy is the most common type filed in the United States. Many businesses choose this type of bankruptcy when they will shut down business, or “go out of business” and liquidate all their assets.

For smaller companies, a Chapter 7 corporation bankruptcy usually means the company goes out of business, sells all assets and employees lose their jobs. Sometimes the company makes this choice based on hardship within the company (when there are debts to pay that far exceed what the company makes). Other times the company's creditors make the choice to file Chapter 7 corporation bankruptcy. In either event, the court immediately appoints a trustee and the process of selling the company’s assets begins.

When a larger company files Chapter 7 bankruptcy, the shareholders often just liquidate and sell pieces of the company, while the rest of it stays intact. Employees may or may not lose their jobs, depending on who buys the various parts of the company and what their plans are.

A Chapter 11 corporation bankruptcy is a little less cut and dry. In this type of bankruptcy, the company is “reorganized” and during the reorganization period, the court will excuse some debts while forcing the company to pay back others during the bankruptcy proceedings.

Many businesses choose Chapter 11 corporation bankruptcy because, while it weakens the company temporarily, it strengthens it for future business endeavors. Both small businesses and large corporations can benefit from Chapter 11 corporation bankruptcy. Often people think of Chapter 11 as a bankruptcy filing for larger companies, but many smaller companies successfully use Chapter 11 bankruptcy as a means to an end of strengthening the company while removing debt.

Some critics of the Chapter 11 corporation bankruptcy code charge that it allows an “out” clause for companies by allowing them to get rid of many debts. As well, many companies emerge from the bankruptcy mostly unscathed. It’s important that companies use the Chapter 11 filing judiciously and intelligently, then.

Get your company back on track and out of debt. Our procedure for fixing companies.


Shareholder's Legal Responsibilities with an S Corporation Bankruptcy

In short, owners filing an S corporation bankruptcy will discover legal entanglements. These can include pass-through income and liabilities the individual shareholder must take responsibility for.

The bankruptcy may involve a reorganization plan, an insolvency contingent, a foreclosure or similar legal actions. The court can force any of these actions.

Since the S corporation and its shareholders are not subject to double taxation, there are certain tax effects that apply to the shareholders. It takes much time and effort to minimize the possibility of undue tax burdens created by the S corporation bankruptcy.

A subchapter S corporation bankruptcy has the disadvantage of making shareholders liable for any tax income generated after the bankruptcy is filed. This is true whether the money passes through to the shareholders or not because the corporation is not a taxable body.

Many owners select an S corporation so they can pass-through profits and losses directly to the shareholders. This avoids the double taxation of an ordinary corporation where the company pays tax and then the shareholders pay tax again on their profits.

The S corporation is limited in the amount of passive income it can gain and the IRS tries to remove pass-through profits paid in nontaxable fringe benefits. S Corporation bankruptcy, however, does not remove the shareholder from the picture.



©Copyright, All rights reserved