Bankruptcy and insolvency

A company that cannot pay its debts has three main routes. Chapter 7 liquidates it: a trustee sells the assets and pays creditors, and the company does not receive a discharge. Chapter 11 reorganizes it: the company usually stays in control as “debtor in possession” and keeps operating while it restructures. An assignment for the benefit of creditors (ABC) is a state-law alternative in which an assignee sells the assets outside bankruptcy court. Which one fits depends on whether the business can survive, how much it owes and to whom.

Steps before you file

1. Get a lawyer who handles business insolvency. Filing choices are hard to undo.
2. Gather the numbers: debts by creditor, secured and unsecured, assets and their likely value, and cash runway.
3. Decide whether the business can survive. If yes, a Chapter 11 or an out-of-court workout may fit. If not, compare Chapter 7 with an ABC.
4. Protect the assets. Keep systems, accounts and records intact; they are part of the estate once you file.
5. Plan the people side. Layoffs may trigger WARN notice; final wages have priority rules.
6. File, then follow the trustee or court. After filing, sales of assets outside the ordinary course need approval.

Where company records fit

In any of these routes, company records are part of what the company owns. In Chapter 7 the trustee decides what to sell; in Chapter 11 the debtor in possession can propose it, with court approval for sales outside the ordinary course of business. Customer personal information has its own rule under 11 U.S.C. § 363(b)(1). If you are considering bankruptcy, tell your lawyer about the email, chat, documents and CRM history the company holds, and do not cancel the accounts that store them.