Bankruptcy doesn’t have to mean the end of your business

On Behalf of | Dec 18, 2019 | Business and commercial bankruptcies |

Your small business may be bankrupt, but its dire financial straits doesn’t necessarily mean that you have to shut the doors on your dreams for good. In fact, filing for bankruptcy may be just what your business needs to overcome its financial struggles and come out stronger than ever.

What type of bankruptcy options do you have?

Small business owners usually have three options when their debts become overwhelming. Knowing as much as you can before you decide which route to take can help you avoid costly and time-consuming mistakes.

Chapter 7 bankruptcy

This is known as a full-liquidation bankruptcy. It’s the “nuclear option” of bankruptcies for a business because it does mean closing your company’s doors. A court-appointed trustee will take control of your business assets and liquidate them in order to pay your creditors whatever is possible. This may be the best option for some sole proprietors — especially if they signed personal guarantees on certain business loans.

Keep in mind, even with this option, many business owners recover and go on to open new companies later.

Chapter 11 bankruptcy

If your company is generating enough revenue to maintain operations but not pay off its debts, this might be the right option. A Chapter 11 bankruptcy basically allows you to renegotiate the terms of repayment on the debts you have. Ultimately, this allows you to manage your company’s income and expenses in a way that helps you become profitable again.

The goal of this kind of bankruptcy is to reorganize the business and overcome the debts with a new plan and additional time.

Chapter 13 bankruptcy

Similar to Chapter 11, this type of reorganization is typically for consumers — but it is also used by many sole proprietors when both their business debts and their personal debts are overwhelming or intermingled but they want to stay open for business. The trustee will then treat all of your debts the same way — but that also means your personal assets fall under the trustee’s authority.

The goal of bankruptcy is to give you the space you need to recover your financial footing. To determine what that should look like for you and your company, find out more about your options.