Many small businesses have been lost to the 2020 coronavirus pandemic, and more may go as the pandemic enters its third year. Still, much of the road ahead remains unclear.
According to research, more than one-third of the country’s small companies have gone out of business, either temporarily or permanently. Because 98.1% of all U.S. businesses have fewer than 100 employees and are considered small, it is easy to see and scary to think about how bad this will be for the economy.
However, aside from the pandemic, there are other reasons why filing for bankruptcy could be considered an option for your business. Some businesses, may fail and go out of business completely because of personal issues, such as illness or divorce as well as calamities such as natural disasters or theft.
Regardless of the reason, there are many things to think about before choosing whether company bankruptcy is the best option for you. Before declaring bankruptcy, small company owners should ask themselves what they want to accomplish by declaring bankruptcy.
In this post, we’ll take a look at everything you need to know when filing for business bankruptcy.
Do You Need an Attorney?
Before you start the process, a legal representative is a must for the sole reason that, with substantial assets, filing for bankruptcy may become challenging. Regardless of how you approach the process, you need to have a business bankruptcy lawyer by your side.
Outside of the bankruptcy court, you are not compelled by law to have legal representation. To file for commercial bankruptcy, however, you must have legal representation. In bankruptcy court, business entities cannot act as their own attorneys due to legal restrictions.
Having said that, hiring a business bankruptcy attorney is always a good idea if you want to reap the maximum benefits while avoiding any repercussions.
What Kind of Business Do You Own?
There are a wide variety of organizational structures in the business world, but some of the most popular include:
- Sole proprietorships
- Partnerships
- Corporations
- Limited liability companies (LLC)
A sole proprietorship does not have a distinct company entity for its goods or services. Accordingly, you have the option of filing for Chapter 7 or Chapter 13 bankruptcy for your situation. Personal bankruptcy will deal with all of your obligations, even those accumulated solely for commercial reasons.
If you have a recognized business entity, like an LLC or a corporation, you may be eligible to file separately. However, if your business is small, you may not need to file for bankruptcy unless your personal assets will be used to cover business obligations. In addition, a discharge is not an option for businesses. In other words, corporate bankruptcy almost never helps the owner to escape personal bankruptcy.
What Do You Hope to Achieve by Filing Bankruptcy?
Before you file your paperwork, you should have a clear picture of your business’s purpose and long-term objectives. To what extent, for instance, do you want a new beginning while maintaining the status quo? Or are you considering calling it quits and trying something new? Think about how a company bankruptcy filing can affect your credit rating while making long-term plans.
Bankruptcy for a Service Business vs. a Product Business
In most cases, business obligations may be discharged by filing for Chapter 7 bankruptcy as an individual and then shutting down a service-based company in accordance with state legislation. The outcome of the bankruptcy process might affect whether or not creditors are able to pursue you after forming a new company.
If your company lacks significant funds, Chapter 7 bankruptcy may be an option; nevertheless, it is not recommended. Furthermore, creditors may attempt to confiscate your company’s assets to settle its obligations if your company structure allows them to do so. Filing for Chapter 7 bankruptcy isn’t always the best option, even if you have no debt and no assets to repay. To provide just one example, in certain areas, dissolving your business is less expensive than declaring bankruptcy.
Even if you don’t get your discharge in the end, filing for bankruptcy under Chapter 7 may still be the best option for you if you run a business that relies on physical products. When you file for bankruptcy, the court will appoint a trustee to oversee your case and liquidate any assets that aren’t exempt from bankruptcy.
Final Thoughts
Consider your business’s aims, its legal structure, and whether it sells services or products before making a bankruptcy filing decision. Chapter 7 or Chapter 13 bankruptcy is available for individuals, and it may be a smart choice for you if you meet the criteria listed above.
However, some company owners could do better by exploring the options available to them under Chapter 11 bankruptcy. Also, keep in mind that dissolving your business in accordance with state law may be preferable to filing for bankruptcy.
