Is Bankruptcy An Option For Saving Your Business?
The option to file for bankruptcy is not limited to just individuals. If your small business is in financial trouble, you might be able to use bankruptcy to help settle some or all your debts and possibly save your business. If you are considering filing, here is what you need to know.
Can Bankruptcy Save Your Business?
If you file for Chapter 13, there is a good chance that you will be able to keep your business operational. The filing can help your business in a couple of ways. One way is that it will give you temporary protection from your creditors if you have a sole proprietorship. Your creditors cannot take any legal actions against you unless they go to court and get permission. The stay buys you time to possibly renegotiate your credit agreements or pay them off.
A Chapter 13 filing also gives you a way to pay off your debts on a schedule that your business can afford. You have to provide the court with a repayment plan for your debts with your filing documents. As long as you make the payments as agreed and have the funds available to keep your business operational, you can stay in business.
What If You Have a LLC or Corporation?
Since a Chapter 13 bankruptcy is not available for LLCs and corporations, you have to explore other bankruptcy options for your business. One possible option is a Chapter 7. With this filing, you cannot save your business. It will be liquidated by the trustee and the funds applied towards your debts.
Another option is to file for a Chapter 11. With this filing, your business would be reorganized and its assets sold to pay creditors. However, the business could continue to operate. The drawback to a Chapter 11 is that if the sell of the business's assets is not enough to pay off the unsecured debts, you might be forced to repurchase your interest in your business.
The right option for your business depends largely on your assets, the amount of your debts, and whether or not you want to retain ownership of the business. For instance, if you want to retain ownership, a Chapter 11 might be a good option, but if your unsecured debts are large, it might not be feasible to attempt to hold onto the business.
Consult with a bankruptcy attorney (like Greg Dunn Bankruptcy Attorney) to review your business's financial situation and determine which bankruptcy filing is right for you.