Despite the common misconception, having to file for business bankruptcy is not a death sentence. It could actually mean the difference between your business sinking or surviving. If your business has been one out of the many experiencing financial hardships as a result of the COVID-19 pandemic, you may want to consider if filing for bankruptcy is the right option for you.
Let the team at the Law Offices of Phillippe and Associates help you understand when you should file for bankruptcy, as well as your filing options.
The Purpose of Filing
If you have been facing financial difficulties for some time, and it looks like there isn’t much of an opportunity for a rebound, filing business bankruptcy may be the right choice for you. Filing can help you either gain protection from creditors while you reorganize or help you begin the process of closing down the business.
There are different forms of bankruptcy that you can utilize. Each is based on a business’s legal structure, and whether the business will be able to become profitable again or if it needs to shut down.
Usually, companies contact a bankruptcy attorney when they run out of options, but doing so sooner rather than later would give you the time you need to restructure and get the rather lengthy process started.
You may also try doing a cash forecast for the upcoming 12 months. If it appears that your business will not be able to meet its monetary obligations, it is time to speak with a bankruptcy attorney. By all means, do not wait until revenue runs out.
Executives would also be at risk for not meeting their fiduciary requirements in regards to reporting to their board or lenders, and can be held accountable for missing payroll or tax payments.
Options for Bankruptcy Filing
Here are some options your business should look into when considering filing for bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is primarily used to liquidate a business. This is appropriate when the business does not have enough assets to operate anymore and needs to pay back debt.
Whether your business is a partnership, a corporation, or an LLC, you may file Chapter 7. As part of the process, a bankruptcy trustee sells the business’s assets and pays its creditors. That aspect makes Chapter 7 a promising approach for small business owners who wish to close their business but don’t want to handle the process of selling assets and negotiate with creditors on their own.
Note that Chapter 7 doesn’t remove the personal obligations you have regarding any remaining debt. If your business is a sole proprietorship, you must file a Chapter 7 personal bankruptcy to clear your business debts.
It is worth noting that it is also possible to stay in business after filing Chapter 7 since there are certain exemptions to protect business assets from being sold.
Chapter 11 Bankruptcy
In comparison to Chapter 7 bankruptcy, Chapter 11 bankruptcy is meant to help a company reorganize in an effort to stay in business.
Chapter 11 lets businesses protect their assets from creditors while attempting to turn itself around. This type of bankruptcy applies to sole proprietorships, corporations, and partnerships. Under Chapter 11, there is major oversight from a court-appointed trustee.
Throughout the process, debt payments are decreased while the company restructures. When filing Chapter 11, the business owner has to give full disclosure of information to creditors about how the company is working to make itself profitable again.
It is not only pricey but also time-consuming for a company to file for Chapter 11 protection and go through the reorganization process. Therefore, it is on the business owner to decide whether the company has the potential of turning around and whether they’re willing to invest their time into the lengthy process.
Chapter 13 Bankruptcy
For a sole proprietorship, there’s another bankruptcy option. If you are a sole proprietor, you and your business are considered the same entity. In this case, you can file Chapter 13 as both the business and as an individual.
Chapter 13 lets you keep all your property and reorganize your debts via a repayment plan.
This form of bankruptcy is usually used by small business owners with a great deal of personal assets or by those who do not qualify for a Chapter 7 filing. Chapter 13 also allows business owners to pay down any personal liability for their business debts.
In a Chapter 13 filing, no assets are sold, but you must show that you have sufficient income to pay off some of your debts.
Speak to an Attorney Before Filing for Bankruptcy
Filing for bankruptcy can be complex and it is in your best interest to consult with a qualified bankruptcy attorney who can help you to fully understand your options.
At the Law Offices of Phillippe & Associates, we understand these are trying times, and that’s why we want to help you use bankruptcy as a tool to get back on your feet and start fresh.
Having helped many file for Chapters 7, 11, and 13 protections, our team will work tirelessly to help you during these unprecedented times.
Don’t Accept Financial Defeat. Get Back on Your Feet when you Contact Our Offices Today.