There are a million and one different reasons for which small businesses fail, and every reason leads to financial destruction without the proper knowledge. Understand how to navigate the deep waters of your debt, and you will come out better in the end.
Bankruptcy for small business is tricky because you want to avoid any personal backlash. Bankruptcy is a federal process. It’s important that you don’t take on filing without the proper guidance or wherewithal. Understanding the intricacies of filing for insolvency is not something that could be completely comprehensible to a layman, and thus would definitely require the intervention of expert bankruptcy lawyers in Harrisburg PA (or the area where your business is situated). A caring, financially-savvy attorney can help you explore your options pertaining to your debt situation.
Nonetheless, here are a few simple tips to give you a hint of what you need to know about filing bankruptcy as a small business owner.
There are three main types of bankruptcy
Depending on the structure of your small business, there are three bankruptcy options to consider. A sole proprietorship is a legal extension of its owner, so this type of structure is capable of filing either Chapter 7, Chapter 11, or Chapter 13 bankruptcy.
Corporations and partnerships, however, are a bit different. They are considered separate legal entities from their owners, and thus can only file for Chapter 7 or Chapter 11 bankruptcy.
Chapter 7 bankruptcy highlights
Filing Chapter 7 bankruptcy is a little different, depending on the structure of your business. For sole proprietorships (which is common for small business), filing Chapter 7 bankruptcy means that all of your personal and business debts are wiped out, and you don’t have to make a monthly payment for reparations.
On the downside of this situation, all of your personal and business assets will become a part of the bankruptcy filing. This means you could lose some of your personal wealth as a direct result of your business taking a dive.
Chapter 11 bankruptcy highlights
If your business really has a shot at turning this financial situation around, you may want to consider filing Chapter 11 bankruptcy. Chapter 11 is no quick fix, and not all cases are successful. Also, it can take you more than a year’s time to sort out the situation.
When your business files successfully for Chapter 11 bankruptcy, a trustee is appointed by the federal court. The trustee is there to make sure the payments keep flowing every month. Repayment on Chapter 11 debts could last for more than a decade, so make certain this is a decision you can handle.
Chapter 13 bankruptcy highlights
Sole proprietorships can choose to file Chapter 13 bankruptcy, and file a repayment plan with the court. This agreement will typically save the owner of a sole proprietorship the trouble of losing personal assets.
No matter which type of bankruptcy you choose to rectify your tangled financial situation, you need a good lawyer by your side along the way. There are far too many ins and outs involved in this legal process to try and conquer it on your own.