Insolvency of companies can happen due to huge debts, mismanagement and negative economic trends. This is the underlying rationale for applying for business bankruptcy.

Bankruptcy is a process by which businesses and individuals are offered the chance under the federal court to get rid of debts or to repay debts under the protection of the bankruptcy court.  A declaration of bankruptcy simply means that the business is not capable of paying his creditors. 

A business declaring bankruptcy can opt for the chapter 7 where unsecured debts are removed or eliminated tin order to give the business a chance to start anew and to start the financial recovery.  Chapter 13 on the other hand, offers a plan to pay secured debts. 

Chapter 7 bankruptcy is also called the total bankruptcy.  It will stay in the credit report for a period of 10 years and filing will be done only once in an eight year time.  Basically chapter 7 is the easiest way to take if you need all your unsecured debts to be removed. 

Chapter 13 is like a payment plan where you get to keep all your assets with the condition that the debts will need to be paid in three to five years period and with the amount determined by the court. 

As with any other option, the filing of bankruptcy does have various disadvantages.  The filing of bankruptcy requires the hiring of attorneys who will be representing your case.  Attorney fees and litigation costs can be both financially draining and time consuming.  The business will need to shell out money it could ill afford.  Because the court controls the assets, the opportunity of improving the business is lost thus losing the chance to earn the much needed profits.  Mortgages after bankruptcy will demand higher interest rates as a result of the business being a high credit risk.  Furthermore, bankruptcy will not absolve the business from paying backlog taxes. 

Due to these drawbacks, filing for bankruptcy is not sensible.  Enlisting the help of debt counselors is a more viable option.  Through the consultation with creditors, a mutually agreed restructuring of business debts could be made.  With right counseling of the debt counselors, a repayment plan that will benefit both the borrower and the lender will be created.  With the counselor's intervention, the monthly installments may be lowered.  This will significantly help the business to get out of the burden of debts quicker and will help in the attainment of financial stability. 

Filing for bankruptcy is a serious big decision.  Certainly it will provide businesses with an opportunity to continue running the business, a fresh financial slate by getting rid of debts so as to the business is no longer liable to pay or by introducing a more reasonable repayment plan under the decision of the court of bankruptcy. 

A great number of businesses are taking the bankruptcy alternative daily.  Some are due to irresponsible financial behavior; others are forced to take the alternative as a solution for unfortunate conditions.  No matter what the cause is, bankruptcy should not be treated as a way to run from financial responsibility but instead as a tool to achieve business profitability and to regain financial health.