Business bankruptcy is very serious. It usually presents some difficult decisions and a considerable amount of paperwork. Even if you’re conversant with small business bankruptcy, know that the laws of many states are different.
Although these laws vary, you will access similar types of bankruptcy, including Chapter 11, Chapter 13 and Chapter 7.
Dealing with bankruptcy is also difficult for most entrepreneurs, but this doesn’t mean it could be the end of your small business.
How Small Business Bankruptcy Works
A small business that doesn’t generate enough money to restructure itself by way of another chapter may use Chapter 7 as a means to unwind or close it. People with insufficient income and minimal property to repair their debts also consider Chapter 7.
This is because Chapter 7 is regarded as liquidation bankruptcy. A Chapter 7 bankruptcy trustee that gets appointed to your case will sell your assets and distribute the money to creditors.
Although the trustee may sell the assets of your business, people filing for this kind of bankruptcy will not get left with nothing. They may keep all the assets that exemption statutes of the state protect.
The Effects of Bankruptcy on Small Businesses
The effects of bankruptcy usually depend on the kind of bankruptcy you filed and your business structure. As mentioned earlier, filing for Chapter 7 means you will close your business and liquidate properties.
In the case of partnerships, things might get a bit trickier. Partnerships are legal entities, so when it comes to Chapter 7 Bankruptcy, trustees may liquidate the business’s assets.
However, if the properties are not valuable enough to pay off your creditors, your personal assets will be at risk and the business would be closed. This means, before making any decision of filing for a bankruptcy case, ensure you:
- Seek a piece of advice from experts
- Remember that filing for bankruptcy is one of the ways to pay off debts
Who Qualifies to File for Bankruptcy?
Business entities and individuals qualify to file for bankruptcy, including the Chapter 7 plan. If you’re also a sole proprietor, your personal and business debt can both be resolved in this same chapter case.
Though filing for bankruptcy on behalf of your small business will not wipe out debts whatsoever. So most entrepreneurs prefer filing for personal bankruptcy immediately after the closure of their business because of the capability of preventing an individual’s responsibility to clear business debt and personal guarantee.
Solution for Bankruptcy
Thinking through all the advantages and disadvantages of small business bankruptcy and determining whether it’s a perfect option is something you should give careful consideration and thought to. However, if you decide to proceed with your filing decision, it’s advisable to evaluate how much a bankruptcy costs before you initiate the process. Business bankruptcy is also a complicated process. In most cases, it is recommendable to hire a bankruptcy lawyer to provide you with legal advice, outline the costs of the services and even help you file your case.
Every case is unique. Before you move forward with any business bankruptcy, it would be best to know the kind of bankruptcy that will meet your requirements.