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Why would someone choose Chapter 11 bankruptcy over Chapter 7?

Chapter 11 bankruptcy is an important form of bankruptcy for businesses. It's uncommon, but even consumers can use this form of bankruptcy in some cases. Chapter 11 gives you time to make a plan to emerge from bankruptcy with a better handle on your finances. It temporarily puts the creditors on hold, giving you time to cut back on costs and seek new income or sources of revenue.

Chapter 7 bankruptcy, on the other hand, is liquidation bankruptcy. It's used by businesses and consumers, and it essentially means you're selling your assets to settle your debts. Some assets are exempt, but overall, Chapter 7 bankruptcy is meant to wipe out your debts.

Unlike Chapter 7 bankruptcy, there is no liquidation of your assets with Chapter 11. You instead get to create a reorganization plan. This plan helps your business become profitable again.

Creditors can work with you to help you get into a position where they can be paid back in full or get as much as possible. Some debts may be discharged when you emerge, or they may be rearranged under better terms.

Chapter 11 bankruptcies are most commonly used by large corporations, but you can use it with a smaller business, too. It gives you a chance to talk to your creditors to get better interest rates or credit terms, to work on lowering your expenses and finding ways to bring in more money.

You can keep your staff working while you're in this form of bankruptcy, so no one has to lose his or her job, even temporarily. Legal professionals work with businesses, corporations and individuals to help decide which is the best choice for the situation. Sometimes, there are other alternatives to bankruptcy as well.

Source: FindLaw, "Chapter 11 Bankruptcy," accessed Jan. 03, 2017

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