There is no shame in filing for bankruptcy. Perhaps your business simply overextended itself, or you created the right product or service for the wrong time. If business simply isn’t booming, it’s important for small business owners to know all the options ahead of time. By doing some research and having the right tools under your belt, you’ll experience a much smoother process and help better your business’ chances for recovery.
Finding an Attorney
This is the first step to take when considering bankruptcy. A reputable bankruptcy law attorney can help you get a sense of your options. When choosing between attorneys, always make sure to ask for a flat fee or an estimate for cost of service.
The price of representation for the type of bankruptcy you file will probably differ, and you may find that an attorney costs more or less depending on the type of business you own. There are three main types of bankruptcy for businesses: Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 Bankruptcy
Many small businesses choose to file for Chapter 7 bankruptcy, especially when the prospects of reorganizing the business are low. With Chapter 7, a trustee will sell all business assets, including its list of clients. This is also called liquidation.
All proceeds from liquidation will be put toward paying the balance of any debts. Afterwards, all unpaid debts will be forgiven, and in most cases the business will no longer exist. In rare circumstances, if no one (including the trustee) buys any of the assets you put up for sale, you can buy your own assets back.
Chapter 11 Bankruptcy
If you have a larger company and don’t want to shut down business entirely, Chapter 11 bankruptcy may be for you. This is also called reorganization, and provides a relatively good option for business owners who believe their companies can recover and ultimately thrive.
However, should you file for Chapter 11 bankruptcy, be known that the process is complex and requires a large monetary investment. Oftentimes, the company that has filed for Chapter 11 will be closely watched by a trustee.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also called repayment, is generally filed by personal consumers. Business owners can also create repayment plans. However, if you as an owner are the sole proprietor of your business, you will be personally responsible for all debts involved – making this more of a personal than a business bankruptcy. This is the best option if your personal assets and company assets are interrelated.
There are numerous resources available for business owners needing to reorganize or restructure their debts. Whether you need to sell all your assets or simply speak with an bankruptcy attorney, it’s a good idea to take advantage of all the resources at your fingertips.
