The laws that apply to the various types of business bankruptcy in Chicago focus on how debt is either repaid by the company or forgiven. In the United States there are essentially only two types of bankruptcy that are used by business; Chapter 7 and Chapter 11. In the case of Chapter 7 this involves winding up the company, selling off the assets, giving the money from the sale as partial compensation to the debtors. In the case of Chapter 11, this is a type of bankruptcy that will allow the company to develop a court approved restructuring plan and it will continue to operate as before while it pays down the debt.
The laws that apply to business bankruptcy in Chicago determine if the business even meets the necessary qualifications needed to declare bankruptcy. To qualify, the business is considered to be insolvent which means that it is unable to meet the financial obligations that were specified in the original contract. In cases like this court will appoint a trustee to oversee the situation, ensuring that creditors are paid, although it is a foregone conclusion that the creditor will receive but a percentage of the debt which is actually owed.
If a company is allowed to go into Chapter 11 bankruptcy the company is given an opportunity to reorganize its finances with a view to paying the accumulated debt and still stay in business. For Chapter 11 to be approved a petition, either voluntary or involuntary must be filed in court. Part of the petition is a plan that lays out how the company will repay the creditors. The company is then known as the debtor in possession which means that retain control of the assets during the restructuring process.
Chapter 11 also calls for a complete disclosure of all the assets and their value as well as any debt against them. It is this information that is used to determine if the plan satisfies the interests of the creditors. The creditors are given an opportunity to voice their opinion and vote to either accept or reject the plan.
The laws that apply to a Chapter 7 business bankruptcy in Chicago are different. In Chapter 7 the business must close and cease all operations. To gain approval for declaration of Chapter 7 the company must prove to the court that it is unable to meet its financial obligations. A trustee is appointed, the assets are sold, usually at auction, the debtors are paid and the debts are discharged, the creditors have no further legal recourse to collect the debt.
There are differences in the laws and structure of the various ways in which a business bankruptcy in Chicago can be declared. To fully appreciate how the laws can affect your business you are invited to contact Chicago Debt Solutions.