Businesses work hard to try and earn a profit. Unfortunately, some businesses can struggle to stay in the black, resulting in serious financial problems. Crippling debt and an inability to make payments to creditors and investors on time may prompt a business to file for bankruptcy. There are two options available to businesses hoping to use bankruptcy as a solution to their financial woes. These options are a Chapter 7 bankruptcy and a Chapter 11 bankruptcy.

1. Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is what most people think of, when they imagine a business that is no longer financially stable. All unsecured debts are discharged in a Chapter 7 bankruptcy. The company filing for relief must cease to do business immediately. All remaining assets will be taken over by the bankruptcy trustee and sold to help repay creditors and investors. Once the funds available for repayment expire, all remaining debts will be eliminating, freeing the business from its financial obligations. Chapter 7 bankruptcies are designed for businesses with crippling financial problems that are unlikely to improve over time.

2. Chapter 11 Bankruptcy

The second option commercial entities have available to them when it comes to finding financial relief is a Chapter 11 bankruptcy. A Chapter 11 petition differs from a Chapter 7 petition in many ways. One of the most significant differences is the fact that the company will continue to operate through the Chapter 11 bankruptcy process. Instead of wiping out unsecured debt, a Chapter 11 bankruptcy strives to restructure the debt to make it more manageable for the company to repay. The bankruptcy trustee becomes a partner of sorts, with all major business decisions requiring the approval of the trustee until the Chapter 11 bankruptcy has been discharged. A Chapter 11 bankruptcy will help alleviate some of a company's financial burden so that it can focus on becoming profitable again.

There are many things that must be taken into consideration, before a commercial entity files for bankruptcy. Whether the business wants to continue operating, how much debt exists, and the type of debt incurred can all be factors that affect the type of bankruptcy that makes the most sense for a business organization. The expertise of an experienced attorney is required to ensure that any bankruptcy pleadings filed on a company's behalf are in the best interest of the business. For more information, contact an office like Molleur Law Office.