Chapter 7

• Companies can file Chapter 7 bankruptcy for the purpose of permanently dissolving the business entity and operations. The general process in Chapter 7 bankruptcy is one of liquidation where the bankruptcy trustee inventories and sells all of the company's assets and uses the sales proceeds to pay off some of the companies pre-bankruptcy creditors. After liquidation, the company dissolves along with any potential legal claims against it.
  
  

Chapter 11

• Chapter 11 bankruptcy is not so drastic as Chapter 7. Instead, a company filing Chapter 11 remains in operation during and after the bankruptcy. Chapter 11 gives the company an opportunity to put its debts on hold while the company reorganizes, and then the company repays its debts, sometimes in whole and sometimes only in part, according to a debt repayment plan approved by the bankruptcy court. Pre-bankruptcy legal claims against the company may be put on hold during the bankruptcy, may be allowed to proceed even during the bankruptcy, or may be resolved and included in the company's debt repayment plan.
  
  

Notice of Claim

• Regardless of whether the company you are suing files Chapter 7 or Chapter 11 bankruptcy, you should consider filing a notice of claim with the court overseeing the company's bankruptcy. The purpose of a notice of claim is to notify the bankruptcy trustee that you may be entitled to some of the liquidation proceeds in a Chapter 7 bankruptcy, or entitled to repayment in a Chapter 11 bankruptcy. Furthermore, filing a notice of claim gives you the right to ask the bankruptcy court to allow you to pursue your legal claim despite the pending bankruptcy.
  
  

Personal Liability

• You should also consider whether you may be able to convert your legal claim against the company into a legal claim against any of the owners, managers, or operators of the company. Claims against the individual members of the company are unaffected by the company's bankruptcy. Filing a personal claim against company members is easiest to do when these individual have signed personal guarantees in connection with your legal claim. Absent a personal guarantee, you may be able to assert an individual claim if you can "pierce the corporate veil" by showing that the individual members of the company did not respect the separate legal entity that is the company. For example, if business owners commingled personal funds with the company funds or made undocumented loans from the business to the individual owners, then you may have a claim against the individuals in addition to the company.