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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. Contact one of our helpful account representatives to assist you in the setup of a high risk merchant account or offshore merchant account for a high risk merchant.