Deciding whether or not to file bankruptcy is a daunting decision, but it’s important to remember that bankruptcy laws were written with businesses and entrepreneurs in mind. Filing bankruptcy does not mean automatic dissolution of your business—some types provide protections that often allow companies to continue operations after bankruptcy and discharge. Many large companies such as airlines and auto manufacturers have benefited from strategically filing for bankruptcy, as it allows them to clear up debt and restructure their business, which can lead to more efficient and profitable operations.
Regardless of whether you are thinking of filing personal or business bankruptcy, it is vital to consult experienced bankruptcy lawyers who will help you devise an effective plan to protect your assets and business.
How Different Types of Bankruptcies May Affect Your Business
How and when your business files for bankruptcy will impact its future viability and financial stability. There are several types of bankruptcy you can file, and each has its drawbacks and benefits. Before you file any type of bankruptcy, it is essential to engage the counsel of a knowledgeable business lawyer who can assess your financial situation and advise you on solutions that will be most beneficial to you.
In Chapter 7 bankruptcy, there is a court-appointed trustee who sells your assets and pays creditors on your behalf. If you file for Chapter 7 bankruptcy, whether you can continue operating your business depends on its structure. If you are a sole proprietor, Chapter 7 may work well to keep your business operational. If your business is a separate legal entity, such as a corporation or LLC, you must file a bankruptcy on behalf of the business. Chapter 7 may be an efficient way to liquidate these types of business structures, but it means that your company will not continue to operate in its current form.
Chapter 13 bankruptcy is a reorganization option that is only available to businesses owned and operated by sole proprietors. In Chapter 13, your business keeps its assets and repays creditors through a repayment plan. There are debt limits that apply in Chapter 13, but certain strategies can help you get your debts below limits before you file. As a sole proprietor, you can include both personal and business debts in Chapter 7 and Chapter 13 bankruptcy.
Chapter 11 bankruptcy also allows your business to keep its assets and repay creditors through a repayment plan. It can be complex and arduous, but Chapter 11 is the only bankruptcy option that allows partnerships, LLCs, or corporations to reorganize and continue operations. Chapter 11 is also an option for sole proprietors who want to restructure and stay in business but owe too much to meet the eligibility requirements for Chapter 13.
If you are concerned about whether or not bankruptcy is the right option to preserve your business, our experienced West Chester bankruptcy lawyers at Carosella & Associates can provide the guidance you need to get your business back on track.