As a result of the current economic conditions many business owners in New York City have decided that they will need to shut down their businesses. They are faced with the decision of how to best do this. Essentially, the options are to liquidate the business in chapter 7 bankruptcy, to liquidate the business by an assignment for the benefit of creditors in state court, or to liquidate the business outside of bankruptcy. For businesses with greater resources another option is liquidating the business in chapter 11 bankruptcy.
1. Chapter 7 Business Liquidation
This involves filing a chapter 7 bankruptcy petition, with supporting schedules of assets, debts and other information with the Bankruptcy Court. A chapter 7 trustee is then appointed to administer the assets of the business and liquidate them to raise cash to pay creditors’ claims.
One major benefit of a chapter 7 bankruptcy is that, immediately upon filing of the bankruptcy case, the automatic stay goes into effect. This stops all further collection activity against the debtor, as well as any pending litigation, foreclosures or judgment enforcement.
Another positive of a chapter 7 bankruptcy for a business is it is a fairly straightforward process to prepare the bankruptcy papers. Our law firm handles these types of cases on a flat fee basis so the business owners know in advance what their legal fees will be.
One of the negatives is that a trustee is appointed to liquidate the assets of the company, and he or she has the ability to investigate financial transactions involving the company and bring lawsuits against insiders to seek to avoid or recover certain transactions. This topic is discussed further in the Frequently
Asked Questions (FAQs) on our website.