A rise or fall in the economy. An adverse legal judgment. Unexpected bills or lack of payments from business partners. A natural disaster. Small businesses face financial blows like these all the time and end up asking the same question: Should my small business consider filing bankruptcy?
Bankruptcy is a legal process for individuals and businesses to use as a means to eliminate or repay debts under the protection of the federal bankruptcy court system.
Before filing for bankruptcy relief, a small business owner should consider these questions:
There are three different types of bankruptcies available to small businesses, depending on the business form and the end goal. For a sole proprietorship, where the owner is responsible for all assets and liabilities of the business, Chapter 7, Chapter 11 or Chapter 13 of the Bankruptcy Code are options. For a corporation or partnership, only Chapter 7 or Chapter 11 are options. The “chapter” that a business files under (i.e. 7, 11 or 13) determines how the case will be administered, as well as the rights of the debtor (entity filing bankruptcy) and creditor(s).
At the end of the day, bankruptcy is a harsh reality that many small businesses face. The fact that it is common does not make it any easier, though. Fortunately, there are trained professionals who can guide you through the process and help you achieve your legal goals.
If your small business is facing financial difficulties, contact a competent bankruptcy attorney to discuss options and a plan of action for financial relief.
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