When you own a business that is financially struggling and unable to repay debts, you might be thinking about filing for bankruptcy. However, when it comes to business bankruptcy, you have a few decisions to make in order to ensure that you're getting the debt resolution that's right for you. Here's a look at what you need to know about your business bankruptcy options and how to choose the right one.
Liquidate And Shut Down
If your business finances have reached a point where it's unrecoverable, you might want to consider filing for Chapter 7. Chapter 7 bankruptcy is a business bankruptcy option in which you liquidate all of the company's assets, dismiss the employees, and shut down the business.
The money raised from the asset liquidation is used to repay your creditor accounts. In most cases, the creditor accounts are settled for the amount that's provided from the liquidation, but in other cases, you may personally be liable for some of the outstanding balances.
You can only file for Chapter 7 if you can prove to the courts that your business isn't generating much revenue. If you're still seeing significant revenue numbers, the courts won't deem you eligible for Chapter 7 because money is still coming in to help repay your debts.
Restructure Your Operation
If your company isn't in such dire straits that it requires a complete closure, you might be able to resolve your financial struggles with a Chapter 11 bankruptcy instead. Chapter 11 allows you to reorganize your business, restructuring the outstanding debts, and working with your creditors to make your payments more manageable.
You'll be able to stay in control of your business, keeping the operation running during the restructure and the court's review of your bankruptcy filing. You may even be able to liquidate some assets to help pay down the debts that your business is struggling to repay.
Restructure A Smaller Business
If the business you operate is smaller, such as a sole-proprietorship or a significantly small business, you may find that a Chapter 13 bankruptcy filing is better. Chapter 13 is an easier option for smaller businesses because it's designed for smaller operations with fewer creditors and lower balances.
You get the same restructuring benefits as with a Chapter 11 filing, but it's more specifically targeted to your business size. You'll usually have up to five years to repay your debts once everything is restructured, which provides you with more manageable payments.
These are a few things to consider if you're thinking about business bankruptcy. Talk with a bankruptcy attorney near you today for more information.