Bankruptcy may be the scariest word for a small business owner. When you hear bankruptcy, you may think of the financial ruin, losing your business, your home, your car, your other property which put on a stake for your business. You may even feel like you may never get another shot at entrepreneurship or any more business loans for you.
Why file bankruptcy?
If your business is consistently under debt and is unable to keep with the expenses then it is already on a short trajectory towards bankruptcy. Filing for bankruptcy can offer you options to stay afloat and keep many of your assets. You can still keep your business running after declaring bankruptcy while you pay off your debts through the negotiation of terms, reorganization, and consolidation.
Moreover, filing bankruptcy might prove to be the smart next to save your struggling small business. It can save your business from the creditors who might want to liquidate your assets. However, you eventually have to pay them what you owe or less, but bankruptcy will buy you more time or even a reduction in the debts.
Therefore, bankruptcy may be exactly what your business needs to get back on its feet.
What are the types of business bankruptcies?
You can file under three types of bankruptcies depending upon your situation as different businesses get affected by bankruptcy in different ways. Filing under the incorrect bankruptcy can have a negative effect on your finances and may even lead you to litigation. So, it is very important and off course wise to consult the best bankruptcy attorney Colorado Springs inhabits.
However, the three types of bankruptcies are:
- Chapter 7– In this, your business needs to be closed and is liquidated to pay all the debts. The sole proprietors file personal Chapter 7, covering both business and personal debts
- Chapter 11– In this, you plan according to your business to reorganize and repay the debt. However, the said plan must be approved by the creditors. Meanwhile, you make the repayments you can keep your business open and maintain your assets.
- Chapter 13– A payment plan is created by you to pay the debt along with a part of future income within three to five years. Companies and corporations do not qualify for this type of bankruptcy.
Sole proprietor business is eligible for all the three types whereas partnerships and corporations can file for Chapter 7 and Chapter 11.
When you should consider filing for bankruptcy?
Here are some of the points as when you should consider filing for the bankruptcy:
- Personal assets are at stake– In the case of the sole proprietor or a general partner business, you are personally responsible for the debts of the business. Your business assets and personal assets are considered the same, which means that your assets can be seized by the creditors to get the debt out of you. Moreover, as a sole proprietor, you have an option to file under Chapter 7 which can eliminate both business and personal debts. You can protect your business assets. As a partner, you can remove your liability for business debts by filing bankruptcy under Chapter 7.
- Business is still workable– If you think your business has a future despite debts, then you may be able to keep it running while repaying and reorganizing the debts. This is the best-case scenario for business bankruptcy as you can keep both the personal and business assets and also the operations of your business running.
- Business is not in viable condition– IF your business cannot be saved anyhow, filing for bankruptcy can reduce the damage.
Filing bankruptcy should not be considered as the end of the world. Depending upon your business situation, it just might the best and smartest move for you. So don’t panic and consult the bankruptcy attorney in Colorado Springs for the best professional guidance.