3 Types Of Bankruptcy You Can File As A Business
If things are not working out for your business and your business is failing from a financial perspective, you can file for bankruptcy. When you file for bankruptcy, you are going to want to make sure you know the specific type of bankruptcy you need to file for based on the structure of your business.
Option #1: Chapter 7 Business Bankruptcy
Corporations, partnerships, and sole proprietorships can all file for Chapter 7, also known as business bankruptcy or liquidation. This is the type of bankruptcy you should file for if you know that your business is not going to continue and that there is no chance that your business could be saved through a restricting process.
With Chapter 7 bankruptcy, all your assets are taken by the court and a trustee distributes or sells the assets and uses the proceeds to pay the creditors. With this type of filing, your business is dissolved and is no more.
If you are running a sole proprietorship or solo business, the debts that you hold will be discharged. If your business is structured as a partnership or a corporation, your debts are not discharged, and you will still be obligated to come up with a plan to pay them back. Oftentimes, the court will help with negotiations to lower your debts to a fraction of their worth in order to allow you to pay them off and move on.
Option #2: Chapter 11 Business Reorganization
All three business types can file for Chapter 11, although Chapter 11 filings are most common among corporations and partnerships. With Chapter 11 bankruptcy, you are not necessarily dissolving your business.
With Chapter 11, you typically get a chance to turn around your business. With Chapter 11, you are given the opportunity to reorganize and create a plan for paying off your creditors over an extended time. This time period can be as long as a few decades. This is a very complicated process, and it can take up to a year to set it up.
Chapter 11 allows many businesses to reorganize and move forward as a successful business.
Option #3: Chapter 13 Personal Bankruptcy
You can only file for personal bankruptcy if you have a sole proprietorship. With a sole proprietorship, you are responsible for all your business expenses and debts. Your personal and business debts are intertwined together.
With a Chapter 13 filing as a sole proprietorship, you are able to protect your personal property, such as your home and your primary vehicle, while settling your debt.
Talk to a law firm like Molleur Law Office to figure out what bankruptcy path your business needs to apply for in order to move forward.