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Business bankruptcy versus personal bankruptcy, is it fair?

Colorado residents know all too well what tough economic times can do to the family budget. As the kids head back to school the parents start receiving the credit card bills for school clothes and supplies leaving many to wonder how they will make ends meet. Many businesses are also faced with a dwindling cash supply and increasing debt load, but the rules for a business to seek debt relief are a little different than they are for the average consumer.

Last year, 9,772 businesses filed for Chapter 11 bankruptcy compared to 1.4 million personal bankruptcies filed by consumers. Chapter 11 bankruptcy protection is a reorganization type bankruptcy also available to some consumers. Late last month, one business bankruptcy included a cable box repair company which filed a bankruptcy plan that was sanctioned by the court. The prepackaged plan allowed the company to reorganize and discharge almost $300 million of its debt, then emerge under new ownership.

Many Colorado residents may have heard the term "strategic default" in regards to the housing market. A strategic default involves an upside down mortgage, meaning a home's value is far below the current amount owed on the loan. A homeowner may choose to stop making mortgage payments on the loan even if they could afford to do so. There are laws against this that could put a homeowner in legal hot water who tries it. Corporations on the other hand, do the same thing, only legally.

When a debt-ridden company is owned by a private equity firm and that company runs into trouble trying to meet its debt obligations it has some options in which to work with, just like consumers do with personal bankruptcy protection. The only difference is a business has ways of hiding, or reallocating some of its assets in which to show a bankruptcy court it does not have the means in which to meet its debt obligations.

Still, even with the income restrictions and asset guidelines in place, bankruptcy protection can offer many consumers the same fresh financial start many businesses find through bankruptcy. Whether it is a Chapter 7 discharge of certain debts or a Chapter 13 restructuring of debt, there are still options available to Colorado consumers. Consult with a bankruptcy attorney who can help you determine the best option for your specific situation.

Source: The Daily Beast, "Bankruptcy for Billionaires," Daniel Gross, Sept. 3, 2012

Our law firm handles a variety of debt relief services, including foreclosure prevention and bankruptcy and bankruptcy in a divorce. Visit our Denver Metro bankruptcy page if you would like to learn more about our services.

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