Commercial Bankruptcy

Just as an individual may acquire insurmountable financial debt, so can a business. Often in this instance commercial bankruptcy is the right solution. Commercial bankruptcy is a legal process which can relieve a business from some or all of its financial debt. Our lawyers at de Moya & Associates, P.C. in Rockland County, New York can help you determine if commercial bankruptcy is right for you.

Bankruptcy Options for Small Businesses

The majority of businesses opt for either Chapter 7 or Chapter 11 bankruptcy, with some choosing Chapter 13. In addition, some businesses may be forced into bankruptcy “involuntarily” by their creditors.  However, creditors face significant financial penalties if they filed involuntary bankruptcy without valid cause.

Chapter 7

Similar to Chapter 7 for consumers, Chapter 7 or “liquidation bankruptcy,” is used by businesses that wish to sell their assets in order to satisfy debts. When a Chapter 7 is filed, the court orders a a stay on all collection activities against the business  . A trustee is assigned to liquidate business assets and distribute the proceeds amongst creditors to satisfy debts as much as possible.  Unlike consumer Chapter 7, remaining debt is not discharged. Instead the business generally is dissolved since the liquidation of assets makes the business unprofitable to continue.

Chapter 11

This is common for businesses, but rare for individuals. During Chapter 11 the debtor is often allowed to continue operating the business. However, the business must be operated in its ordinary course and any transactions outside of its ordinary course must be approved by a court.

After Chapter 11 is filed, attempts at collecting debts by creditors are stopped. Unlike Chapter 7 though, a trustee is not automatically appointed to oversee the case. Instead, the debtor is allowed to determine a time frame to propose a plan of reorganization.  . The plan details how the debtor will operate its business and pay its creditors.  Creditors have input and may also propose a plan of reorganization.  Creditors are divided into various classes with varying rights depending on the type of debt they hold. The plan must be approved by the court and can be approved even though it might not have been approved by the creditors. If no plan is approved, the case is usually converted to a Chapter 7 or dismissed. As with consumer bankruptcy, a case may be converted to a different chapter depending on the circumstances.


Bankruptcy is never the first choice of any business, but sometimes it is the only option. If possible, a business may want to negotiate with its creditors informally to develop a repayment plan or surrender or assign assets for the benefit of creditors.  If you believe the best choice for your business is filing bankruptcy, it is essential that you seek advise from an experienced bankruptcy attorney. At de Moya & Associates, P.C., Rockland County, NY, we help businesses navigate the bankruptcy process. 

**DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

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