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SMALL BUSINESS BANKRUPTCY
Several small and start up businesses
face financial crisis at some point in
time. Businessmen start a business
hoping that they will never have to file
for bankruptcy. Unfortunately, things
don’t always turn out as planned and we
are forced to do something that we hate
to do. In some situations bankruptcy may
be your only option. One thing you can
do is, know and understand the options
that are available to you so that you
can choose the option which is best for
your business.
The first thing you have to establish
is: whether your company is a
proprietorship, corporation or
partnership. If your company is a
partnership or a corporation, then your
company is not tied to its partners or
shareholders according to the law. You
can file for bankruptcy under the
chapter 11 or the chapter 7. There is a
level of risk involved with Chapter 7
because the trustee, appointed by the
court, can sue your partners. This
scenario will arise only if the
company’s assets did not produce
adequate funds to repay all the
creditors. If the company is under the
proprietorship category, then filing for
bankruptcy alone is not possible. The
reason for this is that, the company is
considered as an extension of its owner.
The proprietor is obliged to file for
bankruptcy, and the debts and property
are a form of assets that are owned by
him. The individual owner can file for
bankruptcy under Chapter 13, Chapter 11
or Chapter 7.
The decision on whether to reorganise
the business or liquidate it, is another
issue and has to be sorted out. Under
the Chapter 7, the funds received by
liquidating your assets are used to pay
back your debts. The business will be
shut down and all the employees will
lose their jobs. This option should be
chosen only if there is no future for
the business. If your company has
several debts, which makes reorganising
impossible, then this is the only way
out.
If you want to fight back by
reorganising your business, then you can
do so. However, it has to be carried out
under the trustee who is appointed by
the court. The reorganisation plan must
be approved by a majority of the
creditors. It should have a fixed
timeline before which the business must
pay back its creditors. This is how
filing for bankruptcy under Chapter 13
works. The company makes a repayment
plan that has to be approved by the
majority of its creditors. This depends
on the amount of debt you have, how much
your business turnover is and the total
value of your assets.
If you have decided to file for
bankruptcy then consult a good attorney,
who will guide you to choose the right
option. Also, remember that filing for
bankruptcy under chapter 7 will not go
down to well with your creditors. It
will show in your credit report for ten
years. However, chapter 11 will show in
your credit report for 7 years. |
