Liquidation Versus Reorganization: What to Know
Whether you are researching bankruptcy options for yourself as an individual debtor or for your business, you have likely come across the terms “liquidation” and “reorganization” in various contexts. You might have realized that these terms are used to refer to different types of bankruptcies, and that there are many different chapters of bankruptcy under US bankruptcy law that are considered reorganization bankruptcies. Both liquidation and reorganization bankruptcy options can be available to individual and business debtors, but the cases can look quite different depending upon whether an individual or a business is filing.
Whenever you or your business are considering bankruptcy, it is critical to seek help from a West Palm Beach bankruptcy lawyer since every case will have its own set of facts and particular nuances. At the same time, there are important overarching things to know about liquidation versus reorganization in bankruptcy cases, and our lawyers can tell you more.
What Does Liquidation Mean?
The term liquidation in relation to bankruptcy refers to a type of bankruptcy in which a debtor’s assets are liquidated so that creditors can be repaid. Yet the way a liquidation bankruptcy works is different for individuals and businesses.
Both individuals and businesses file for liquidation bankruptcy as a Chapter 7 bankruptcy. However, in an individual case, the individual retains a wide range of “exempt” assets outlined under Florida law, and the individual can receive a discharge of remaining debts. In other words, all assets are not liquidation — only non-exempt assets. In a business Chapter 7 case, the debtor does not receive a discharge at the end of the case. Instead, the business closes, creditors are paid out of the liquidation of the business estate, and there is no longer a legal entity (the business) for creditors to pursue.
What Does Reorganization Mean?
Reorganization, unlike liquidation, refers to a type of bankruptcy in which assets are not liquidated at all. Instead, the debtor restructures debt obligations with creditors over a lengthy period of time (usually three to five years) through a plan of reorganization. Individuals who file for reorganization bankruptcies can receive a discharge of remaining eligible debts at the end of the repayment plan. Businesses can remain open and can continue to operate during and after the bankruptcy case. The following are types of reorganization bankruptcy filed by individuals and businesses:
- Chapter 11 bankruptcy (usually businesses, but also individuals with especially high amounts of debt);
- Chapter 12 bankruptcy (businesses that are family farmers or family fishermen);
- Chapter 13 bankruptcy (consumers, as well as sole proprietorship bankruptcies since the individual and business are not distinct entities); and
- Subchapter V (a type of Chapter 11 bankruptcy usually filed by small businesses).
Contact Our West Palm Beach Bankruptcy Attorneys Today
The type of bankruptcy that is best for you or your business will depend on a number of factors, including eligibility for certain types of bankruptcy and your individual or business needs. If you are considering bankruptcy, do not hesitate to contact an experienced West Palm Beach bankruptcy lawyer at Kelley, Fulton, Kaplan & Eller to find out more about bankruptcy options. Our attorneys have years of experience representing clients in South Florida bankruptcy cases and can speak with you today about moving forward with a bankruptcy petition.
Sources:
law.cornell.edu/uscode/text/11
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics#:~:text=Background,court%20approval%2C%20borrow%20new%20money
irs.gov/businesses/small-businesses-self-employed/chapter-11-bankruptcy-reorganization
