Small Business Bankruptcy

Many small businesses have faced a financial crisis at one time or another. Business owners hope that they never have to consider bankruptcy when they set up their business. Unfortunately sometimes things do not always work out as we plan, then bankruptcy may be the answer you are looking for. It is advisable to ensure that you understand all the options available and the one that suits your business best.

First, you need to establish whether your business is a partnership, corporation or proprietorship. If your business falls under the corporation or partnership category, this means that it is a legal entity that is separate from shareholders or partners. You can file under Chapter 7 or Chapter 11 bankruptcies. There is some risk involved under Chapter 7 in that if the court appointed trustee can sue the partners. This happens if the assets are inadequate to repay debts. If the business is a proprietorship, they cannot file for bankruptcy alone. This is because the business is an extension of the owner. The proprietor is obligated to file bankruptcy, as the property and debts are just one form of assets owned by the proprietor. The individual owner may file under Chapter 7, Chapter 11 or Chapter 13.

Whether the business is to be liquidated or reorganized is another issue that has to be sorted. Under Chapter 7, when you liquidate your assets, the proceeds acquired are used to repay creditors. The business will have to stop operations and employees lose their jobs. This can work if the business has no possible future. This is also an option if your business has too many debts and reorganizing is impossible or the company does not have substantial assets. Should you choose to reorganize your business, there is hope.

Reorganization is carried out under a court appointed trustee. The advantage of filing under this chapter (11) is that the business keeps operating as the business gets reorganized. The plan has to be approved by the creditors and will have a timeline for the business to repay its creditors. Under a Chapter 13 bankruptcy, the company submits a repayment plan of how they will repay their debts. This depends on how much you earn, the amount you owe and the value of your property. Ensure that you consult with a good bankruptcy attorney so that they can guide you on the most suited option for you.