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Is Chapter 7 or Chapter 11 most suitable for business in trouble?

When a small business in Louisiana experiences cash flow problems or other financial hardships, the owner may be researching the best way to handle the situation. There are bankruptcy options to consider, and the choice of Chapter 11 or Chapter 7 bankruptcy may depend on the owner's intention to close the doors of the business or to try to save it. To make this choice, comprehensive information about the available options is necessary.

Chapter 7 bankruptcy -- also known as liquidation bankruptcy -- is the suitable choice when the owner intends to cease doing business. A court-appointed trustee will oversee the liquidation of assets, and proceeds will go to pay secured debts. Payments for unsecured debts will follow if any funds remain after paying secured debts. The bankruptcy court will discharge any remaining debts.

For a business owner who wants to save the business, Chapter 11 may be the ideal choice. The court will also appoint a trustee, but in this case, the task of the trustee will be to oversee the reorganization of the business debts based upon a court-approved plan. The owner, with the guidance of the trustee, will attempt to negotiate extended payment terms with creditors, and the trustee will supervise the management of the business. Repayment of the debts must then continue after reorganization from ongoing earnings.

To make informed choices about business bankruptcy, a business owner may want to discuss his or her options with an experienced Louisiana bankruptcy attorney. A lawyer can explain the pros and cons of Chapter 7 and Chapter 11 bankruptcy in more detail. The attorney can assess the financial situation of the company and provide advice about the available options. With skilled guidance, a business owner may achieve financial stability -- either by continuing business operations or by closing the doors and pursuing other opportunities.

Source: investopedia.com, "What are the differences between chapter 7 and chapter 11 bankruptcy?", Dec. 10, 2016

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