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As an entrepreneur, you will need unlimited energy, tunnel vision and free time. Sometimes, even when you have all of this, your business does not succeed. Your business may become a financial nightmare and thus you will need to have information about bankruptcy for business.
When your business begins to fail, you must let go of your dream. Once reality sets in, you will want to know what alternatives you have. While you could simply shut down your business and take care of the debt yourself, you will want to understand bankruptcy for business. This is another avenue you can go down when the business is just not profitable.
Unfortunately in October of 2005, the courts enacted new bankruptcy laws that made filing bankruptcy for business more difficult. Nevertheless, it is still an option. Bankruptcy is a complicated topic. While this article will not go into all the details about bankruptcy filings, it does review some key points.
Three Types Of Bankruptcy For Business
The type of bankruptcy you file depends on your business entity. If you have a corporation, an LLC or a partnership, then you can file for either a Chapter 7 or Chapter 11 bankruptcy. However, if your business is a sole-proprietorship then there is no separation between you and your business. You can file for Chapter 7, Chapter 11 or Chapter 13 bankruptcy. With all three types of bankruptcy, a court will appoint a trustee to your business. This individual oversees not only the bankruptcy process, but also all of your major business dealings to make sure everything goes smoothly and check for fraud.
Most sole proprietorships file Chapter 7 bankruptcy because it erases most, if not all of your business debts. The court then liquidates all of the business assets and uses the profits to pay off creditors. Of course, there are certain criteria that you must meet to file this form of bankruptcy for business. First, you must be sure that you fall within the monthly income restrictions. These are different in each state but if your income is too high then you will have to take a means test. This will decide if your monthly disposable income is enough to allow you to file Chapter 13 bankruptcy or if you are still can file Chapter 7.
In Chapter 11 bankruptcy you will work with a trustee to reorganize your business to repay your creditors. The bankruptcy court will decide if your business is to repay these debts in part or in whole. This bankruptcy for business process is both extensive and expensive.
Chapter 13 bankruptcy requires that your secured debts be less than $922,975 and that your unsecured debts be more than $307,675. In this form of bankruptcy you will work with a trustee to find a way in which to pay back your debt, either in whole or in part, over an agreed on period of time.
This is a long, involved process that you can hopefully avoid. But if you cannot, make sure you know all of your options when you are considering bankruptcy for business.
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