Businesses, like individuals, can face insurmountable debts and declare bankruptcy. Bankruptcy is not always the best solution. While it can provide a new beginning, it can also harm a business' credit rating. Some bankruptcy types require the business to dissolve itself. An experienced attorney can advise you on the best action to take.

Businesses can choose several options. One is a Chapter 7 or liquidation bankruptcy. When a business files for Chapter 7 bankruptcy, the bankruptcy court issues an automatic stay, which prevents creditors from taking any action to collect the debt. The court appoints a third party called a trustee to liquidate business assets. Funds from the sale of assets are then distributed to creditors by the trustee. The trustee cannot liquidate business assets which are exempt, or which are already under lien for debts. When the liquidation funds are distributed, the debts are discharged and legally cease to exist. Some debts cannot be discharged. These include debts incurred through fraud or malicious actions, spousal or child support obligations, and some debts incurred shortly before filing for bankruptcy.

Chapter 11 bankruptcies allow businesses to continue operating through the bankruptcy process. An automatic stay is issued. Courts can choose to appoint a trustee, but often do not. The debtor is allowed time to create a reorganization plan, which details the payment plan and how the business will operate. Creditors are allowed to vote on the plan, which the court can approve with or without the consent of the creditors. If the plan is not approved, the business can be liquidated. Businesses can choose to switch between bankruptcy proceedings, but cannot switch back.
It is possible for creditors to attempt to force a debtor into bankruptcy. However, this requires a minimum number of creditors and a minimum amount of debt. If courts decide against the creditors, they can face tough penalties and be held liable for court costs and damages.

Debtors and creditors can both benefit from the counsel of an experienced bankruptcy law attorney. The bankruptcy process can be expensive and complicated, and has long-term ramifications. An attorney can help to get you through this process, or advise you on alternatives like counseling or developing a payment plan.