Running a small business is tough. You make many decisions on your own. It allows you freedom, but it can also feel like a burden. This is especially true when business is not going well. Maybe the market is down, or you made some unwise purchasing decisions. Whatever the case, your business is losing money, and you cannot seem to get ahead.
You were considering filing for bankruptcy to get the creditors off your back, but you do not know if you are ready to close up shop. Here is what you need to know about filing for business bankruptcy.
If you do not want to stay open
Chapter 7 bankruptcy is often referred to as liquidation bankruptcy. When you file for Chapter 7, you are ready to close your business. If you do not see a future for your business, you should select this option. During Chapter 7, the court appoints a trustee who takes control of your business assets and sells these off to pay your creditors. After the assets are sold, all your business debts are typically discharged.
If you want to keep operating
With a Chapter 11 bankruptcy, a business continues running. You essentially reorganize the business. When you file for bankruptcy, creditors must stop trying to collect from you. You have 120 days to produce a reorganization plan. This plan stipulates how you will make payments to creditors over a period of several years. Usually, you pay the creditors only part of what is owed.
After you file the plan with the court, any of your creditors can vote to approve or not approve the plan. The court can accept the plan, even if not all your creditors do. However, if the court does not approve your plan, you may have to liquidate your business. Even if your plan is accepted, your business can still fail.
If you are a sole proprietor
Chapter 13 bankruptcy is usually reserved for individuals. However, if you own a sole proprietorship, your business and personal finances are entangled. Chapter 13 is like Chapter 11 because you offer a repayment plan to your creditors. According to The Balance, if you are concerned about losing your home during bankruptcy, filing for Chapter 13 instead of Chapter 7 can protect your home.
You may be unsure what option is best for you and your business. A bankruptcy attorney can review your case and advise you about the wisest course of action.