Automatic Stay

• The first effect of either type of bankruptcy is the court's issuance of an automatic stay, an order that requires creditors to stop all collection activity absent future approval of the court. The automatic stay permits the business in bankruptcy some breathing room and relief from the efforts of creditors to collect funds.
  
  

Chapter 7 Bankruptcy Discharge

• What happens to a business under Chapter 7 bankruptcy is dramatic and significant. Because Chapter 7 results in a discharge of the business's debts, the operations of the business cease. Simply, the business goes out of business. The end of operations typically occurs immediately upon the filing of bankruptcy.
  
  

Chapter 11 Bankruptcy Reorganization

• The impact on a business of a Chapter 11 bankruptcy includes reorganization. These provisions of the bankruptcy court require the business to reorganize its operations in a way that will ensure profitability in the future.
  
  

Chapter 11 Bankruptcy Restructuring

• Chapter 11 of the U.S. Bankruptcy Code permits restructuring of a business's debt. Through this process the court oversees the modification of existing debt to provide the business a more reasonable opportunity to pay off its obligations. Some debt may be discharged. Finally, through the restructuring process, a business actually is able to obtain fresh financing if necessary to keep operating. New creditors receive priority over prior ones, a provision in the law designed to encourage fresh financing for a business that potentially can survive.
  
  

Expert Insight

• Due to the complexities associated with either bankruptcy option, and recognizing the impact on a business of these procedures, obtaining legal counsel is essential. State and local bar associations maintain lists of attorneys in different practice areas, including lawyers who provide representation in commercial bankruptcy cases. Contact information for these organizations is available through the American Bar Association:
  
  American Bar Association
  321 N. Clark St.
  Chicago, IL 60654-7598
  312-988-5000
  abanet.org/barserv