As a small business owner, filing for bankruptcy can feel like the end of the world. However, the sad reality is that more than 13,125 businesses filed for bankruptcy in 2022.
Understanding exactly how to take action and quickly finding experienced legal representation for your case can make all the difference in determining what’s next. Below we’ll cover everything you need to know about filing for bankruptcy as a small business; from the types of filings available to key steps in completing the process and managing repayment plans.
Whatever your company’s situation, whether too much debt or cash flow problems, there’s always action to be taken.
Table of Contents
What is Bankruptcy and What Types of Businesses Can File For It?
Filing for bankruptcy is a legal proceeding that can help businesses restructure their debt, eliminate certain types of debt, and potentially save the business from financial collapse. As with any financial undertaking, it is highly recommended to seek the advice of an experienced bankruptcy attorney who can help you navigate the complexities of filing for bankruptcy and resolve your financial distress.
Different types of businesses may benefit from filing for bankruptcy if they qualify under one of the seven categories established by federal law. In most cases, filing for Chapter 7 or Chapter 11 bankruptcy could be your best solution to regain control financially.
Chapter 7 and Chapter 11 Key Distinctions
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is for individuals or businesses who cannot pay off their debts. This type of bankruptcy allows the debtor to sell off their non-exempt assets, with the proceeds going to pay off their debt.
In return, the debtor is granted a discharge of their remaining debt. Chapter 7 bankruptcy is available to most individuals who pass a means test, proving that their income is below a certain threshold.
Chapter 11 bankruptcy is primarily designed for businesses struggling to pay their debts. It allows companies to restructure their debt and operations while continuing to operate their business.
Chapter 11 bankruptcy is typically more complex and expensive than Chapter 7, and requires a skilled bankruptcy attorney. One of the key differences between Chapter 7 and Chapter 11 bankruptcy is the debt limits. Chapter 7 bankruptcy is generally for individuals or businesses with little to no disposable income and is applicable for smaller debt amounts.
On the other hand, Chapter 11 bankruptcy is for larger debt amounts and usually for businesses that can potentially become profitable in the future.
Pros and Cons of Filing for Bankruptcy
Filing for bankruptcy can be intimidating, with serious decisions and significant consequences. The benefits of filing for bankruptcy are that it gives you a chance to get rid of some or potentially all of your debt, depending on which chapter you file. However, it is important to remember that there will be drawbacks, such as the long-term damage it can do to your credit score.
It can affect future business opportunities and loan applications. With that in mind, having a knowledgeable and experienced bankruptcy lawyer can make a huge difference. They can ensure the paperwork is correctly filled out from the start, which could save many headaches.
If you are considering bankruptcy, educate yourself about the pros and cons so you can make an informed decision about what’s right for your financial situation.
Where to File for Bankruptcy?
You can file for bankruptcy in a federal court in the district where you resided or operated your primary place of business for the majority of the previous 180 days. And once you do file, an automatic stay goes into effect, stopping most collection activities and legal proceedings against you.
When Is the Best Time to Seek Help From a Bankruptcy Lawyer?
Knowing when to seek help from a bankruptcy lawyer is an important step in managing serious financial issues. Businesses should consider consulting with a knowledgeable attorney early on in their struggles, so that they may consider all options available prior to making any non-reversible decisions or business agreements.
A good bankruptcy lawyer can be an invaluable asset during these difficult times, providing legal counsel and easing the road ahead.
Filing for bankruptcy is a complex procedure that can involve many steps. Small business owners should know their rights, understand the types of bankruptcies available, and know when to seek help from an experienced bankruptcy lawyer.
In addition, filing for bankruptcy will impact your business operations and credit rating. However, what’s important is that you can get a fresh start and ensure that you are making the best possible decision for your business while keeping your assets protected.
Bankruptcy may not be a pleasant experience, but with the right guidance, there can be light at the end of the tunnel. An experienced bankruptcy lawyer can help you manage your financial situation and assist in finding creative solutions that are tailored to fit your particular needs.