Business Bankruptcy Law and Legal Definition

Business bankruptcy is used to describe a bankruptcy case in which the debtor is a business or an individual involved in business and the debts are for business purposes. It can be filed voluntary, or involuntary, as when initiated by creditors. It can be filed under Chapter 7 where the business assets are liquidated, or sold, to pay the debts of the business or under chapter 11 whereby a business may declare bankruptcy but continue to operate under the direction of a court-appointed trustee. Chapter 11 is available to any type of business, including sole proprietorships, Limited liability companies, and corporations. Bankruptcy can also be filed under Chapter 13 bankruptcy which is really a personal bankruptcy used by an individual who is involved in a failed or failing business who wants to protect his/her personal assets. For example, a sole proprietor may file for bankruptcy under Chapter 13 provisions. Like Chapter 11, the business is placed on a reorganization plan which is supervised by the court.