While many businesses flourish with seemingly little effort, there are many more that have financial struggles. If your company falls into that second category, it’s imperative that you think carefully about how you’re going to handle the situation.
Is a Chapter 7 bankruptcy a good idea? It might be if you don’t think that your business can bounce back from its current financial situation and you’re hoping to avoid personal responsibility for the debts. A Chapter 7 filing for your company will dissolve the business and liquidate the company’s assets to cover the debts for the business.
Chapter 7 may be most useful for sole proprietors who meet the “means test” for that type of bankruptcy because most sole proprietors don’t have many assets that can be seized. Filing for Chapter 7 when you’re in a partnership, however, could put your business partner’s assets at risk. An LLC or corporation may find Chapter 7 more difficult — and less useful — than a Chapter 11 reorganization.
Once you’ve looked carefully at your business situation, ask yourself the following questions:
- Is this financial distress likely to continue because of some external factors, like changing market demands or conditions?
- Do you want to keep the business open (and do you think that reorganizing the business debts will allow you to do so)?
- Are your personal assets and finances at risk if you file Chapter 7?
Making sure that you understand the ins and outs of Chapter 7 bankruptcy for your business can help you to determine whether this option is the best for you or not. Make sure that you discuss any concerns you have with your attorney before you file.