What is Bankruptcy?

What is Bankruptcy?

January 24, 2024 by investor

What is Bankruptcy?

Business bankruptcy is meant to protect the personal assets of the owners of a firm.

It gives your company a fresh start by relieving the business of debts.

There are several types of bankruptcies.

Consider these options for your business:

Chapter 7 — Liquidation

This shuts the business down and pays the creditors from the assets remaining.

Use this type of bankruptcy if the business is no longer viable even with the debts removed.

Chapter 11 — Reorganization

This reorganizes the business and shows a plan for how to repay the creditors.

In most cases, the creditors will lose a portion of what is owed them.

If they can recover a portion of the debt that is better than losing it all. 

Chapter 13 — Personal bankruptcy

This reorganizes a sole proprietorship business in which the owner’s personal assets are mixed with that of the business.

It creates a plan to repay the debt over the next three to five years.

Bankruptcy does go on the business owner’s credit report.

Consider these options for your startup that is undergoing a turnaround.


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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.