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Who is liable for paying back debts in a Chapter 11 bankruptcy?

It may seem like we hear about brick-and-mortar stores filling for business and commercial bankruptcy more often now than ever before. It is important for people in Tennessee to understand the basics of Chapter 11 bankruptcy, which is the type of bankruptcy many of these businesses choose to turn their financial future around.

Through Chapter 11 bankruptcy, the debtor will propose a reorganization plan that will allow it to keep its doors open while paying its creditors what they are due over a certain time period. Corporations, sole proprietorships or partnerships can all file for Chapter 11.

In the case of corporations, it is the corporation itself that is considered the debtor and therefore is liable for paying back its debts out of its assets, rather than the personal assets of the shareholders. In a sole proprietorship, on the other hand, the owners of the business do not have a separate identity from the business itself, and thus business assets and the owner's personal assets that may be used to pay back business debts. A partnership, like a corporation, is a separate entity from its partners. Unlike corporations, however, the personal assets of the partners might be used as well as business assets to pay back business debts and sometimes the partners themselves must file for bankruptcy as well.

As this shows, the type of business filing for bankruptcy makes a big difference as to which assets are on the table when it comes to developing and implementing a court-approved repayment plan. However, the basic information in this post only touches on the complex topic of Chapter 11 bankruptcy and does not replace the advice of attorney. Those who wish to learn more about the ins-and-outs of Chapter 11 bankruptcy are encouraged to seek professional advice on the matter.

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