When a business files for bankruptcy, the particular circumstances of that bankruptcy will determine whether the business is reorganized or is liquidated completely. No two business bankruptcy cases are exactly alike. For this reason, it is important for business owners considering Chapter 11 bankruptcy or other bankruptcy options to speak with attorneys experienced in business bankruptcy cases specifically. Experienced attorneys should be able to give business owners a good sense of what the outcome of their case should be, given the unique circumstances surrounding their situation.
Regardless of whether or not a business is reorganized or dismantled in the wake of bankruptcy, some corporate assets will almost certainly be transferred to creditors over the course of the bankruptcy process. In a reorganization case, this transference process will likely be less dramatic than it will in a liquidation case.
Very specific rules govern the order by which creditors must be paid in business bankruptcy cases. An attorney will be able to help explain these rules as they pertain to your case particularly. The creditor payment rules are generally affected by the ways in which assets are sold. If assets are sold according to state corporate law, certain specifics will apply that differ from those applied if assets are sold via a liquidation or a bidder approach. In liquidation cases, shareholders are only paid after secured creditors and unsecured creditors.
This basic outline should provide some food for thought. But again, it is important to consult an attorney about your specific case, as state law and the approach you choose are likely to affect your situation in particular.
Source: New York Times, “Dividing Up the Assets After a Bankruptcy,” Stephen J. Lubben, Dec. 18, 2014
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