What Are the Different Types of Business Bankruptcies?

If your business is in financial distress, filing for bankruptcy could be the best option. Filing for bankruptcy provides immediate relief from creditors’ collection efforts, and, depending on the type of business bankruptcy you choose, going through the process could be a cost-effective way to either wind up your business’s operations or restructure your business’s operations for the future. In either case, working closely with an experienced Miami business bankruptcy attorney will be essential—as you will want to ensure that you are making informed and strategic decisions with your business, your customers and your own personal best interests in mind.

Strategically leveraging the benefits of the business bankruptcy process starts with choosing the best path forward under the circumstances at hand. Once you choose how to proceed, you can focus on maximizing the benefits of the specific type of business bankruptcy you have chosen.

4 Bankruptcy Options for Struggling Businesses in Florida

Broadly speaking, struggling businesses in Florida have four main options when it comes to filing for bankruptcy. As we discuss below, each of these options has its own unique set of benefits and limitations, and it is imperative to choose the best option under the specific circumstances at hand:

1. Traditional Chapter 11 “Reorganization” Bankruptcy

In a traditional Chapter 11 “reorganization” bankruptcy, the focus is on finding a way for the business to manage its debts on an ongoing basis—with the goal of strengthening the business’s financial position going forward. As with all business bankruptcy proceedings, filing under Chapter 11 triggers the U.S. Bankruptcy Code’s automatic stay, and this prevents the business’s creditors from pursuing collection during the bankruptcy process (subject to limited exceptions).

In a traditional Chapter 11 case, creditors have the opportunity to play a significant role in the process, and finalizing the process generally involves negotiating a reorganization plan that is reasonably satisfactory to the business’s creditors. Ultimately, however, the Chapter 11 process serves to reduce the business’s outstanding financial obligations so that it can make timely payments going forward while also devoting resources to growth.

2. Subchapter V “Small Business” Bankruptcy Under Chapter 11

Subchapter V of Chapter 11 establishes special provisions for “small businesses” that need to reorganize their debts in order to regain financial stability. As of April 1, 2025, the debt limit to qualify as a small business under Subchapter V is $3,424,000.

For qualifying businesses, pursuing a small business bankruptcy under Subchapter V can offer several benefits—and this will be the preferred approach in many cases. Some of the benefits of filing under Subchapter V include:

• A disclosure statement is not required;
• Creditors cannot file competing reorganization plans;
• There is no unsecured creditors’ committee;
• The “absolute priority” rule that protects certain unsecured creditors does not apply; and,
• Creditor consent is not required to finalize the business’s reorganization plan.

All of these factors help to streamline the process and minimize the costs involved. Given these benefits—and given the fact that filing under Subchapter V also affords access to the other benefits that are generally available under Chapter 11—businesses that qualify to file under Subchapter V generally won’t have a compelling reason to pursue a traditional Chapter 11 filing.

3. “Small Business Case” Under Chapter 11

Another option for qualifying small businesses is to pursue a “small business case” under Chapter 11. The “small business case” option was established under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which Congress enacted in 2005.

Congress enacted Subchapter V subsequent to the enactment of the BAPCPA; and, generally speaking, filing under Subchapter V offers greater benefits. As a result, if a business qualifies to file under Subchapter V and the BAPCPA, filing under Subchapter V will make the most sense in most cases. With that said, it is important to consider all of the options that are available, and an experienced Miami business bankruptcy attorney will be able to help you make an informed decision based on your business’s specific circumstances and needs.

4. “Liquidation” Bankruptcy Under Chapter 7

For businesses that are in financial distress and that do not have a viable path toward profitability, it may make sense to file under Chapter 7 instead of filing under Chapter 11. A Chapter 7 bankruptcy is a “liquidation” proceeding, which means that the focus is on paying down the business’s debts and winding up its final affairs.

But, while filing under Chapter 7 generally means closing the business, it does not preclude business owners from trying again. If you own a heavily indebted business and you have a new business plan that you are prepared to execute once you have the financial ability to do so, then filing under Chapter 7 could be a viable solution.

Business Owners May Also Want to Consider Alternatives to Bankruptcy in Some Cases

When considering the business bankruptcy options discussed above, it may also be worth considering alternatives to a business bankruptcy filing. In some cases, businesses that wish to continue operating will be able to achieve the financial stability they need without going through the bankruptcy process. Some examples of potential alternatives to a business bankruptcy filing (including a Subchapter V and “small business case” filing) include:

• Entering into forbearance agreements with the business’s creditors;  
• Restructuring the business’s debts informally (outside of the bankruptcy process);
• Conducting an internal corporate restructuring to improve cash flow;
• Renegotiating contracts with lenders, vendors and customers; and,
• Pursuing an assignment for the benefit of creditors.

As with the business bankruptcy options discussed above, each of these alternatives will make more or less sense in different sets of circumstances. Informed decision-making is critical—and this starts with engaging an experienced Miami business bankruptcy attorney who can provide custom-tailored advice based on your business’s current financial position.

Speak with a Miami Business Bankruptcy Attorney at Edelboim Lieberman

Would you like to discuss your options with a Miami business bankruptcy attorney? If so, we invite you to get in touch. Call us at 305-768-9909 or tell us how we can reach you online to schedule a free consultation today.