Bankruptcy can be the best option to choose for keeping troubled businesses afloat or closing them efficiently. To benefit, you should consider the specifics of your business and the bankruptcy type you’re going to file.
Certain Chapters of Bankruptcy
Due to Chapter 13 bankruptcy and Chapter 11 bankruptcy, you can keep your small business open and make smaller payments to creditors each month. If your business lacks the necessary cash flow to make payments, you can close your business efficiently based on Chapter 7.
Not all businesses can choose one and the same bankruptcy option. The reason is that filing bankruptcy has different effects on different types of businesses. Taking wrong steps can have a negative impact on your personal finances and even take you to court.
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Bankruptcy Options for Sole Proprietorship
Let’s focus on merchants who are sole proprietors. This means they own a business, which is not a separate entity and they are responsible for the business debts. In this case, the bankruptcy filed must include both the sole trader’s personal and business debts and assets.
Below you can find bankruptcy options for sole proprietors:
- Chapter 7 Bankruptcy – Your business and personal debts will be released from charge without making you pay over time. Not all types of debts will be eliminated. Both your business and personal assets will become part of the bankruptcy estate. However, you’ll be able to keep certain assets that are known as “exempt assets.” If you have little property, you can keep most or all of it.
- Chapter 13 or 11 Bankruptcy – This will allow your business to go on operating, but enough cash coming in on a monthly basis is required for making your monthly payments. Be aware these payments will be smaller. Choose this option if:
- You don’t qualify for Chapter 7 but need to get protection from the creditors
- You need to keep your business open
- You need more property than Chapter 7 allows
Bankruptcy Options for Corporations and Partnerships
These businesses don’t suggest business debts discharge. No exemptions will be available to protect your business property. Below you can find more details concerning these bankruptcy options.
Chapter 7 Bankruptcy – The bankruptcy trustee bears the responsibility of paying off your business assets and distributing the proceeds to your creditors. This can help you save the business money without facing a lawsuit. However, you won’t get rid of your personal liability of paying your business bills. If the corporation files bankruptcy in federal court, the creditors will easily initiate alter ego litigation to make the shareholders pay the corporation’s debt.
Chapter 11 Bankruptcy – The corporation will be allowed to operate, making smaller monthly debt payments.