Sometimes your business does not work out as you planned. If you are in financial turmoil with your business, you might be considering bankruptcy. Filing for bankruptcy can be a scary and intimidating thought, but it is sometimes necessary and even helpful. The bankruptcy process helps you eliminate or repay your business debt.
There are three ways to declare bankruptcy for your business. Your choice will depend mostly on your business structure. Keep reading for an analysis of what type of bankruptcy you should consider.
If your business is a sole proprietorship, corporation or partnership, you might qualify for a Chapter 7 bankruptcy. Chapter 7 is beneficial if your debts are too overwhelming to restructure. This process liquidates your business debt. Only sole proprietorships receive a discharge, however.
Maybe you see that your business still has a future and you need to get over this financial hurdle. In a Chapter 11 filing, your company will reorganize and continue. Creditors and the bankruptcy court must approve the reorganization plan. A Chapter 11 plan lays out how you will pay creditors over a certain period of time – sometimes up to several decades. Sole proprietorships, corporations and partnerships can utilize this type of bankruptcy.
You should only consider a Chapter 13 filing if you are a sole proprietorship. This type of bankruptcy is a personal bankruptcy usually used by consumers. Chapter 13 also involves a repayment plan depending on what you owe, your income and what property you own. If you have personal assets involved with your business, you might benefit from filing Chapter 13 instead of Chapter 7.
Running a business is hard work. Sometimes you face financial trouble, but bankruptcy is one way to deal with it and move forward. Consider these options and read more about small business bankruptcy in this Bankrate post.