Bankruptcy Options for Small Businesses
Bankruptcy is not only for individuals who have found themselves in debt. Small businesses can also benefit from the fresh start that bankruptcy can offer.
Can I File For Bankruptcy With My Small Business?
Bankruptcy options for small business come in several forms. To determine which option is right for you, there are a few key things to consider. If you are a sole proprietor or a general partner, you are personally liable for the obligations of your small business. Thus, if the business is in financial trouble, you are too as creditors may be able to take your personal assets to satisfy the business’s debt.
This is not the case if you are a limited partner, your business is a corporation, or your business is a limited liability company (LLC). If your business falls under any of these, you are usually not personally responsible for business debts unless you cosigned or personally guaranteed the debt.
What Type of Bankruptcy is Right for My Small Business?
If you decide to file bankruptcy on your small business, Chapters 7 and 11 bankruptcies offer certain benefits and drawbacks. If you have a partnership, corporation, or limited liability company (LLC), you can file Chapter 7 bankruptcy on behalf of your business. Chapter 7 is primarily used to close and liquidate a business. Once the bankruptcy case has been filed, a bankruptcy trustee sells the business’s assets and uses that money to pay its creditors. If you wish to close your small business, this is a great option for you as it saves you the trouble of selling assets and negotiating with creditors. However, Chapter 7 business bankruptcy does not eliminate your personal obligations on any business debts; thus, you may still be responsible for debt after the selling of assets.
Chapter 11 is known as “business reorganization bankruptcy.” If you wish to keep your business and continue to operate it, this is a better option for you. Chapter 11 allows businesses to continue operating while reorganizing their debts through a repayment plan. Though this allows reorganization and repayment, it is generally a much more expensive and complex form of bankruptcy. Chapter 11 also carries additional requirements such as filing ongoing operating reports and the appointment of a creditors’ committee. Chapter 11 also requires all creditors to vote on and approve a bankruptcy plan before it can be confirmed.
Bankruptcy is a viable option for many small businesses that are deeply in debt. However, it is important to know your options before making the choice to file for bankruptcy. Seeking the legal advice of experienced bankruptcy lawyers like those at Amerio Law Firm in Sacramento is a great first step on the path to debt recovery. The Amerio Law Firm will provide you with your options on bankruptcy, including alternative solutions to bankruptcy, to ensure you are making the best decision for your unique needs.