In 2018, Chapter 11 bankruptcy filings rose by 63 percent. Businesses large and small may have to consider filing bankruptcy due to economic stress or other unforeseen circumstances. Are you a business owner considering filing for bankruptcy?
While it may seem overwhelming, you must learn everything you can about corporate bankruptcy and what to expect. Don’t know where to start?
We’ll tell you everything you should know about handling business bankruptcy. Read on for your basic guide to business bankruptcy.
Your Must-Know Guide About Facing Corporate Bankruptcy
It doesn’t matter if you’re an experienced business owner or entrepreneur who committed one of the most common start-up mistakes. Either way, you may end up at a crossroads due to the economy, not understanding your industry or making the wrong calls.
These situations may push you to consider business bankruptcy. Before taking this step, you should learn more about how to file bankruptcy and consult a local attorney. An expert can tell you more about your options and the consequences of each type of filing.
Before meeting with your attorney, you should know the basics about corporate bankruptcies and what to expect during your process. Here are the must-know facts about business bankruptcy chapters you should learn before seeking advice from an expert.
If your business is in too deep, filing chapter 7 may be your best option. These corporate bankruptcies don’t seek any reorganization or repayment of the debts. Instead, it aims to release the owner from any obligations for their debts.
Keep in mind that partnerships and corporations aren’t eligible for discharge from any debts. In this chapter, the court designated trustee will take the company assets and distribute them among the creditors. In most cases, the company is dissolved at the end of the bankruptcy.
This chapter is the best option for businesses that want to continue operating. Under this filing, you will file a plan regarding how you will repay your debts and deal with your creditors. Chapter 11 may allow you to reorganize your business and stay operating.
If the court approves your reorganization plan, a court-appointed trustee will oversee your business operations. Keep in mind that the judge may appoint the business owner as Chapter 11 trustee.
This chapter applies to individuals. But, your business may be eligible for this filing if it’s a sole proprietorship. These corporate bankruptcies work similar to Chapter 11.
For Chapter 13, you will file a repayment plan explaining how you will pay for your debts. Yet, you should think twice about filing this chapter if you don’t want to get your personal assets involved. If you decide to file Chapter 11 instead, you can protect your assets from your business creditors.
The Bottom Line
Deciding to file corporate bankruptcy is one of the toughest decisions for any business owner. Yet, you must file the bankruptcy chapter that provides you the best outcome. Before contacting an expert, you must take a hard look at your business operations and finances.
Can your business continue operating under a restructuring plan? Is dissolving your company your best option? These questions can tell you more about your potential bankruptcy options.
Keep in mind that sole proprietorships have more options than other corporate structures. After you understand where your business stands, you should consult a local attorney to learn more about the best approach in your case.
Want more helpful tips about dealing with bankruptcy and other business management subjects? Check out our Business & Finance section for more insightful articles.