For a majority of business owners, accruing vast amounts of debt may seem like an insurmountable obstacle and an end of the line. However, the adage “When one door closes another one opens” is true in every facet of life – and getting out of debt is no exception.
The US bankruptcy system offers numerous options for businesses to become debt-free, regain financial stability, and even head down the path of profitability once again. However, to reap all these benefits, it is important to choose the right bankruptcy option and the legal guidance that follows it.
However, choosing between the Ch 7, Ch 9, or Ch 11 bankruptcy attorney in San Diego can be a daunting task without the elementary knowledge of the subject matter. Fortunately, that’s what we’re here to remedy today, so let’s dive right in.
Why do many people prefer Chapter 11 to Chapter 7?
To understand why the majority of business owners find Chapter 11 more beneficial than Chapter 7, it is important to familiarize yourself with various aspects of both models, especially in the context of goals and duration.
Chapter 7 vs. Chapter 11: A Side-by-Side Comparison
Although they lead to what is essentially the same outcome (i.e debt mitigation), Ch 7 and Ch 11 vastly differ in virtually every other aspect:
- Core mechanics:
- Chapter 7: Involves the court-supervised liquidation of the company’s non-exempt assets in order to repay the creditors.
- Chapter 11: Aims to restructure the debt, thereby allowing the company to retain assets necessary for business operations.
- Asset control:
- Chapter 7: Places the control of the company’s assets in the hands of a court-appointed trustee, to distribute or liquidate them in the most beneficial way for all parties involved.
- Chapter 11: The business owner typically retains control of the assets so they can leverage them to increase profitability or to sell them and repay the creditors through a “Voluntary Liquidation” (not to be confused with Chapter 7 liquidation).
- Feasibility:
- Chapter 7: Typically considered a “last resort” option and used when a business shows no potential for recovery.
- Chapter 11: A preferred option if the business shows the potential to once again become profitable and financially stable.
- Finality:
- Chapter 7: In most cases, results in the cessation of operations and the dissolution of the business.
- Chapter 11: May result in a cessation but, usually, allows the business to continue operating, so long as it remains profitable and demonstrates profitability potential for the foreseeable future.
- Time Frame:
- Chapter 7: A much quicker option, seeing how the entire process can be completed in a matter of months.
- Chapter 11: Depending on the specifics of the arrangement and the complexity of the case, the Ch 11 process can take years to complete.
- Cost:
- Chapter 7: Generally cheaper due to the shorter process duration and funds being acquired through liquidation.
- Chapter 11: More costly due to the process being lengthier and more complex and the need to develop a viable reorganization plan, as well as potential ongoing legal and administrative fees.
Conclusion
While both options are viable, the decision on whether to choose Chapter 11 or 7 will typically come down to future profitability. If the business shows the potential for recovery and future solvency, Chapter 11 or one of its alternatives is usually the way to go. However, if projections are not promising and the business is deemed “beyond saving”, cutting the losses through Chapter 7 may be the best option.
Who’s the top Ch 11 bankruptcy attorney near me in San Diego?
From the Bay Area to San Carlos and anywhere in between, you won’t find better legal aides than at the Bankruptcy Law Offices of Mark L. Miller. With decades of specialized experience, a strategic approach to every individual case, and dedication to securing the best possible outcome of every case, we’re the top choice of bankruptcy attorneys in the larger San Diego area. Reach out to us today and let us help you find the ideal option for your unique situation.