When people hear the term “small business bankruptcy,” images of overdue bills, piles of bank statements, and empty pockets often come to mind.
However, filing for bankruptcy doesn’t have to mean giving up your business forever or falling into financial ruin. In fact, a business bankruptcy will not affect you individually unless you guaranteed business debts or your business is a sole proprietorship.
Filing for bankruptcy may allow a business to eliminate some debt while restructuring their organization and staying in operation. Before pursuing any chapter of bankruptcy, it’s important to determine whether you are filing on behalf of yourself or your business.
Chapters of Bankruptcy for Businesses and Individuals
If you are personally liable for your business’s debt or manage a sole proprietorship/general partnership, you’ll want to consider Chapter 7 or Chapter 13 bankruptcy. There are some important distinctions between the two to be aware of.
- May be filed by individuals or business owners on behalf of themselves or their business
- May discharge personal and business debts for sole proprietors in the case of a single personal bankruptcy
- Offers potential exemptions to safeguard business assets
- Possibility to lose personal assets to liquidation
- Business may remain in operation after debts are eliminated
- Only for individuals (not business entities)
- May be used by sole proprietors to discharge both personal and business debts
- Repayment plan available to reorganize debts
- Longer process
- Potential to retain assets
- Ability to keep business in operation as you reorganize debts
Chapter 7 and 11 bankruptcies are available to corporation, LLCs, and other small businesses. It is imperative to understand that filing for Chapter 7 bankruptcy on behalf of yourself does not discharge debts for your business. However, filing for Chapter 7 bankruptcy on behalf of your business does provide a viable option for organizations looking to liquate and shut down operations completely.
- For small businesses including partnerships, LLCs and corporations who want to restructure debts and stay in business
- For sole proprietors who are ineligible for Chapter 13 due to high amount of debt
- Longer process and costlier than Chapter 7 bankruptcy
- Entails monthly operation reports
You may have also heard of Chapter 12 bankruptcy, which is reserved for family farmers and fishermen.
What to Consider
There are several ins and outs to examine when planning to file for bankruptcy. As you prepare, be sure to do the following:
- Determine whether you are filing on behalf of yourself or business
- Decide whether you want to shut down or continue business operations
- Calculate how much debt you owe and what type it is
While the idea of filing for bankruptcy may be alarming, remember that it does have the potential to provide financial relief. If you decide to close up shop after filing, you’ll have a payment plan to follow and some debts discharged. If you decide to remain in operation, you’ll have a means to continue financing operations and end unfavorable contracts.
Finding the Right Counsel
Having a knowledgeable advisor on your side makes it easier to navigate the bankruptcy process. To achieve your most favorable outcome, work with a law firm experienced in small business law and bankruptcy matters.
Located in Alexandria, VA, Tyler, Bartl & Ramsdell, P.L.C. has over 25 years of experience helping individuals and businesses find firmer financial ground. While the decision to file for bankruptcy is always challenging, TBR can help you find the path to success again.
Give us a call at (703) 549-5000 and ask for a free consultation.